Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits

In this week's saga of the Black Liquor Tax Credits, Dad got blamed for luring away a big customer, Son looks as if he'll really start paying off for some paper mills, and Congress decided to cash in on Grandson. Let's start with the oldest first:

Dad (AKA, the original black liquor tax credit): In advance of a hearing regarding whether his company illegally sold paper in the U.S. at below cost, an official of Asia Pulp & Paper noted today that his company's adversaries had been heavily subsidized by the U.S. government.

"Domestic producers gained market share between 2007 and 2009 and during that time we lost our largest U.S. customer, Unisource, to NewPage. NewPage lured them away with lower prices made possible by the enormous federal ‘black liquor’ subsidies they received," said Terry Hunley, acting president of APP Americas. "What we’re seeing here are hedge fund managers, who have taken over the American paper industry, looking for another government bailout."

Son of Black Liquor: A second pulp maker, Rock-Tenn, revealed this week that the IRS approved it as a Cellulosic Biofuel Producer last month, which means it can claim a lucrative tax credit for the black liquor (a pulp byproduct) it burned last year to produce power. The company estimates the after-tax value of these "Son of Black Liquor" credits to be $113 million, but it expects to net only $29 million because it will first have to return the original black liquor credits it earned last year. Kapstone, the first paper company to qualify for Son of Black Liquor, has similarly estimated it will net $22 million.

Grandson of Black Liquor: After many months of wrangling and revisions, the U.S. Senate gave a crucial thumbs up today to the Small Business Jobs Act of 2010, which includes a provision banning crude tall oil, another pulp byproduct, from receiving cellulosic biofuel credits. Most pulp makers had never dreamed of the acidic, corrosive liquid qualifying for a program intended for motor fuels, but that hasn't stopped Congress from claiming that closing this Grandson of Black Liquor loophole will save nearly $1.9 billion. (A friend of Dead Tree Edition has questioned my moniker for this bogus loophole, noting that movie monsters have sons but not grandsons. He suggested "Creature From the Black Liquor Lagoon" instead.)

For help in understanding the saga of the dysfunctional Black Liquor Tax Credits family, see:

• IRS Ruling Helps Pulp Makers Keep Black Liquor Billions
• IRS Brings Son of Black Liquor Back From the Dead; Ruling May Be Worth Billions to U.S. Pulp Makers 
• Congress and Paper Companies Covet 'Son of Black Liquor' Funds
• Grandson of Black Liquor: Congress Milks Another Pulp Byproduct for Bogus Savings