Paper Industry Analyst Prevails in Libel Case

In a victory for freedom of the press and good old American stubbornness, a bogus defamation lawsuit against paper-industry commentator and gadfly Verle Sutton was recently dropped. Sutton, never one to mince words, issued a colorful news release (below) yesterday announcing that his name had been cleared.

In the May 2014 issue of his newsletter, The Reel Time Report, Sutton exposed a scheme that enabled Cate Street Capital to make money from managing the unprofitable, hopelessly outdated Great Northern paper mills in Maine by tapping state funds. He also pointed out the somewhat checkered history of the company and its CEO, John Halle, who responded by filing a libel suit and partially blaming Sutton for Great Northern’s September 2014 bankruptcy.

His Great Northern exposé was not the first time Sutton had plumbed the depths of questionable government handouts to the U.S. paper industry: When news broke in 2009 that federal eco-fuel tax credits were being handed out to pulp mills for burning black liquor, The Reel Time Report accurately detailed the potential bonanza, company by company. Later, Sutton showed that Democrats had turned a blind eye to that multi-billion-dollar bit of corporate welfare to gain passage of Obamacare.

Sutton was his usual forthright self in the 2014 “The Maine Problem” report on Great Northern. Some highlights:

• “Technically, Cate Street purchased the Katahdin mill late in 2011 from Brookfield for $1.00. Practically, however, it was the State of Maine that really provided the capital needed to get the mill up and running again.”
• “Cate Street began operating the mill late in 2011. It messed up everything right from the beginning . . . and it generally behaved like a company that had no clue what it was doing.” 
• “After stranding customers with an abrupt mill closure in January 2014, [Cate Street] stated publicly that it was shutting down to work on its business plan. That was the first time that anyone had ever heard of a company shutting down to develop a business plan.”
• “In hindsight, the high-cost paper company [Great Northern] did not go bankrupt as quickly as we thought it would, because the State of Maine supplied it with a steady flow of funds: newspapers have reported the total at $142 million in loans, grants, and guarantees. So, in effect, Cate Street has lost $142 million in just over two years; this is in addition to the $2.5 million it owes the feds in back taxes, the $2.5 million it owes Brookfield in unpaid utility bills, the $3.0 million it owes Millinocket and East Millinocket in unpaid real estate taxes, and smaller quantities owed to numerous other suppliers. This massive financial failure does not affect Cate Street, of course, because Cate Street is a separate financial entity."
• “Perhaps the game plan all along was just to ride Great Northern as long as it would last, taking a big cut along the way. Great Northern’s slow demise might have lined the pockets of Cate Street owners, and perhaps others.”

It’s no wonder Halle was miffed. Fortunately for Sutton, truth is an absolute defense in libel cases.

Here is Sutton’s news release, verbatim:

John Halle, of Cate Street Capital, drops libel lawsuit against paper analyst and author of The Reel Time Report, Verle Sutton

Chicago, Illinois — May 2, 2016 — As reported recently in the Bangor Daily News (April 22, 2016), John Halle (CEO of Cate Street Capital) has formally dismissed the libel lawsuit that Cate Street Capital and Halle had initiated against Verle Sutton almost two years ago. This claim of libel had resulted from an article in the May 2014 issue of The Reel Time Report, written by Sutton, in which Cate Street Capital and State of Maine officials were strongly criticized for actions they took that related to the Great Northern Paper mills in northern Maine.

Industry Intelligence, the publisher of Reel Time, had also been named as a defendant in this lawsuit. Industry Intelligence and John Halle reached a settlement earlier in 2016.

In response to John Halle choosing to end the lawsuit against Sutton, and the Industry Intelligence settlement, Verle Sutton has issued the following statement:

I am grateful to family and friends who have been so supportive during the last two years as we fought through the groundless lawsuit that John Halle and Cate Street Capital initiated against me for authoring “The Maine Problem.”

The legal costs incurred during the last two years have been substantial, and the time our family lost was unfortunate. However, our losses pale in comparison to the damage that has been inflicted on the East Millinocket and Millinocket communities and, in fact, on all of northern Maine. These communities and this region were misled by state officials and Cate Street about the viability of the restarted Great Northern Paper mills.

And it was mostly small businesses in Maine that lost more than $20 million as a result of the bankruptcy of Great Northern Paper that occurred under the watch of John Halle and Cate Street. In addition, tens of millions of Maine taxpayer dollars were wasted by way of Dolby landfill costs, FAME loans, the New Market Tax Credit program, etc.

Although the financial and personal damages to Maine businesses and taxpayers were severe, that was not the case with the finances of Cate Street Capital. It was my opinion, when “The Maine Problem” was published, that Cate Street Capital had assumed little or no financial risk in its Great Northern investment. That opinion has not changed.

Since my family and I do not live or have business activity in Maine, we have no personal stake in Maine business or politics. I am simply a paper analyst. I initially wrote about Great Northern because it was a paper company in a segment of the paper industry covered by The Reel Time Report. However, in reviewing the activities related to the restart of Great Northern, and the subsequent actions of Cate Street and Maine government officials, it became obvious that something was very wrong.

When Halle initiated the libel lawsuit against me, he stated that I had knowingly lied when writing “The Maine Problem.” That was absolute nonsense. It is unfortunate, from my perspective, that our legal system does not allow me to counter‐sue Halle and Cate Street based on the accusations in that lawsuit. (Accusations made in a lawsuit are, for some reason, legally considered “protected speech.”)

Although the lawsuit has been dismissed, when you Google my name — Verle Sutton — the Cate Street lawsuit is the first story that comes up at the top of the page. It is clear that the blatantly false accusations made by Halle will never go away. The newspaper story that reported those accusations in May 2014 will forever be my online legacy.

In the lawsuit initiated by Halle, he claimed that roughly 73 lines in “The Maine Problem” were libelous. Later, after I had incurred substantial legal costs, all but 18 of those lines (four statements) were simply dropped from the lawsuit by Halle’s attorney. Therefore, after publicly claiming libel based on 73 lines of the report, he privately dropped 75% of the complaint.

My attorney then filed a Motion for Summary Judgment — principally based on protected opinion. Based on this motion, the judge threw out three of the last four statements, leaving two lines remaining— really, only one word.

The next steps were to be 1) a deposition on the part of John Halle (I had already given my deposition), and 2) another Motion for Summary Judgment (but this motion was to be based on relevant factual evidence).

So, at the time this lawsuit was dismissed by Halle, the only remaining issue was the use of the word “convicted.” John Halle had objected to the use of “convicted,” arguing that the word suggested a criminal offense. (The judge had previously ruled that the word “cheated” was not actionable since a New York court had ruled that Halle was legally responsible for committing civil fraud.)

It is true that “conviction” does, in court proceedings, refer to criminal cases, and had I known of this distinction when “The Maine Problem” was written, I would have used a different word. Nevertheless, it is not an error — much less libel — to use words as they are often used in our society. The fact is that “conviction” is commonly used in public discourse, and occasionally even in the media, to refer to the results of civil cases. (A quick computer search had discovered 40 very interesting examples we were prepared to present had the lawsuit continued, but hundreds of examples could have been located.) In addition, it was clear based on the context of the paragraph in question that I did not intend to imply criminal activity. The next sentence stated, “The $1 million (that had never been paid) is, after fourteen years, now up to $2.3 million, according to a New York judge’s ruling.” There was absolutely no reference to criminal penalties, as there would have been had this been a criminal proceeding.

I was, therefore, very disappointed that the insurance company representing Industry Intelligence agreed to a clarification of the word “conviction,” and a sanitized rewriting of the passage in general as part of a settlement agreement. I strongly objected to their settlement, but my concerns were ignored. The insurance company demonstrated a complete absence of ethical conviction. And it was a bad business decision as well.

 
For more information, contact:

Jane Keyes
Sutton Paper Strategies 
mail@suttonpaperstrategies.com

Two Paper Companies Convicted of Being Canadian

Paper undergoing supercalendering

First there were the Black Liquor Boondoggles, now there’s the Supercalendered Scam. The U.S. government’s attempts to prop up the country’s ailing paper industry once again are going to ridiculous lengths, this time with U.S. consumers, printers, and publishers footing the bill.

Last week, the U.S. Department of Commerce imposed duties on imports of supercalendered (SC) paper from four Canadian companies, supposedly because the companies received unfair subsidies from governments in Canada

But DOC didn’t even bother to investigate two of the companies, Catalyst Paper and Irving Paper. In a case of pure guilt by association, Commerce's case against the two basically amounts to: "They make SC in Canada; therefore, they are guilty."

A Catalyst news release neatly summarizes what happened:

The DOC imposed preliminary countervailing duties on imports of supercalendered paper from four Canadian paper producers – Port Hawkesbury Paper, Resolute Forest Products, Irving Paper and Catalyst Paper – on July 27, 2015. Despite its statutory obligation to examine each of the companies, the DOC refused to examine Catalyst Paper and Irving Paper individually, and instead assigned them a preliminary “all-others” rate of 11.19%, which is the simple average of the preliminary rates assigned to Port Hawkesbury Paper and Resolute Forest Products.

Since August 4, 2015, based on this rate, Catalyst has deposited to the U.S. treasury approximately $1.3 million, representing sales of 17,000 tonnes of supercalendered paper to U.S. customers.

In its Final Determination, the DOC once again refused to examine Catalyst Paper and Irving Paper individually and instead assigned them a final “all-others” rate of 18.85%, which this time is a weighted average of the final rates assigned to Port Hawkesbury Paper and Resolute Forest Products.

Close-up of a supercalender

If you’re an American, you may be saying, “What the heck, let the Canadians pay.” But much of the burden is actually falling on Americans in the form of higher prices for paper and an unintended windfall for Canadian printers.

Because the duties are creating such a huge mismatch between the Canadian and U.S. prices for the same paper, some printing work that was done at U.S. plants is being shifted north of the border. SC paper, which is polished at high pressure through a series of rollers, is often used in magazines and newspaper inserts.

Also, Catalyst and Irving are not exactly foreign companies. Catalyst employs more than 1,000 people at its two U.S. paper mills, and Irving has extensive forestry operations in Maine.

You can blame the struggles faced by American SC manufacturers on the declining demand for magazine-quality paper. Or on the strong U.S. dollar. Or even on capitalism. But don’t automatically blame the Canadian companies that, as far anyone can tell, are merely engaging in good old American-style free enterprise.

Related articles:

• Boo-hoo!: North American Paper Companies That Enjoyed Black Liquor Subsidies File Complaint Against Foreign Competitors' Subsidies
• Black Liquor Hangover: U.S. Paper Industry Cheers GOP Victory After Gorging on Democrats' Handouts
• No Pulp Fiction: Strong Dollar May Mean Paper Savings for U.S. Publishers 
• 17 Years Later, Using SCA in Magazines Can Still Stir Controversy

Boo-hoo!: North American Paper Companies That Enjoyed Black Liquor Subsidies File Complaint Against Foreign Competitors' Subsidies

Please see this update to the story: Hurts So Good: Is International Paper Hoping To Be Punished?


It’s a case of the pot calling the kettle black liquor: Three paper companies that received well over $1 billion in dubious black-liquor subsidies from the U.S. and Canadian governments are suing to stop “unfair” competition from foreign competitors.

Domtar, Packaging Corporation of America, P.H. Glatfelter, and Finch Paper joined with the United Steelworkers union Wednesday to announce they had filed “antidumping petitions against unfairly priced imports” of uncoated freesheet paper (copier paper, for example) from China, Indonesia, Brazil, Portugal, and Australia. Part of their justification for seeking levies on certain paper imports is that China and Indonesia unfairly subsidized their paper companies’ exports.

Since 2009, Domtar has received more than $700 million in tax credits from two U.S. government biofuels programs that have been widely criticized as thinly veiled subsidies of the American paper industry. Both the Alternative Fuel Mixture and Cellulosic Biofuel Producer Credits programs rewarded paper makers for what they and competitors worldwide were already doing – burning black liquor, a caustic pulp byproduct, to power their mills.

Domtar, a Canadian company with extensive U.S. operations, also received $143 million from a Canadian government program that rewarded the use of black liquor at that countries' mills. The program was set up to keep Canadian pulp operations competitive in the face of the U.S’s massive black-liquor subsidies.

PCA quaffed more than $300 million from the programs itself and Boise, which PCA subsequently acquired, took in more than $200 million. Glatfelter imbibed more than $100 million from the programs. Finch was apparently not a beneficiary.

Sitting out this fight is International Paper, a major uncoated freesheet producer that pocketed well over $2 billion from the black liquor programs. IP is a truly global player with much of its production and sales outside of North America, which may make it reluctant to stir this pot even though it would probably benefit if duties are imposed.

"Foreign paper manufacturers are taking advantage of the unfair trade practices of dumping and subsidies to undermine U.S. manufacturers," said Mark Kowlzan, PCA's CEO, said yesterday.

Most of the tax credits were booked in 2009, before Congress finally closed the loopholes that enabled the paper companies to subvert the two programs that were intended to promote the use of environmentally preferable fuels. But favorable rulings from an extremely accommodating Internal Revenue Service have kept the money flowing since then, including $166 million to PCA last year.

IRS whistle blowers have complained that the rulings ran counter to law and logic and based purely on political expediency. Congress dallied in closing the loopholes, apparently as part of the horse trading to get Obamacare passed; then, with some extremely creative accounting, it closed the loopholes and used the supposed savings to help pay for Obamacare.

Related articles:

• Black Liquor Hangover: U.S. Paper Industry Cheers GOP Victory After Gorging on Democrats' Handouts 

• IRS Inaction Leads to Another Black-Liquor Windfall for U.S. Paper Companies
• Black Liquor Tax Credits: The Gift That Keeps on Giving To Paper Mills -- and Taking From Taxpayers
• More than 50 other Dead Tree Edition articles on the black liquor subsidies.

 

 

Black Liquor Hangover: U.S. Paper Industry Cheers GOP Victory After Gorging on Democrats' Handouts

Snark alert: I believe in both the laws of science and the laws of economics, which these days means I'm neither a Republican or a Democrat. So don’t try to read any political bias into the following article; it is intended to be equally offensive to liberals and to conservatives. 

The Obama Administration has enabled U.S. paper companies to pocket an estimated $25 billion in black liquor tax credits the past six years, but here’s a clear sign the tap is about to run dry: The paper industry’s trade association this week hailed the recent Republican election victories as a sign of “Americans’ real appetite for change in Washington, D.C.”

“The bureaucracy that causes delay after delay and regulations that fail to balance benefits with costs have created an atmosphere of uncertainty in the business community, making it difficult to plan for future investment when the rules change faster than they can be implemented,” said Donna Harman, president and CEO of the American Forest & Paper Association. She specifically singled out environmental regulations.

To understand this turn of events, and why the paper industry is biting the Democratic hand that fed it so lavishly, it’s time for a quick civics lesson about the political parties’ competing approaches to climate change:

Democrats want to tackle climate change head on, promoting regulations to tamp down greenhouse gases and new programs to encourage clean energy sources. But those well-intentioned programs mostly end up getting hijacked to benefit favored companies in ways that do nothing to help the environment.

The quintessential GOP approach is to scoff at climate change or the need for carbon-reducing regulations and incentives. Conservatives declare disagreement with the diagnosis (humans are speeding up dangerous climate change) because they don’t like the proposed cure (big government programs). But that doesn’t stop savvy Republicans from investing in companies that will profit from the new Arctic shipping lanes being created by the melting of polar ice.

Some liquor to ease the pain 
The Democrats’ approach started paying off for the paper companies about six years ago, when "the miracle of black liquor" in the form of round-heeled Internal Revenue Service rulings literally kept several companies afloat during a down paper market. The IRS gave the companies permission to abuse biofuel-incentive programs by collecting billions in eco-incentives for doing what they had already been doing for decades – burning black liquor, a pulp byproduct, as a fuel source.

“Industry-wide, black liquor may have cost taxpayers upward of $25 billion,” Jane J. Kim, an IRS lawyer, stated recently in a letter to select Congress members and Treasury officials. She cited Black Liquor, “Son of Black Liquor”, and “Grandson of Black Liquor” tax credits as prime examples of “IRS Management abuse.”

Her protest adds to that of William Henck, a whistleblower IRS lawyer who says IRS employees examining the black liquor credits were told by high-level agency officials “to take a position that was contrary to the law and to published IRS guidance.”

Clearly a cover-up
“There was in my opinion clearly a cover-up of the decision to allow well connected taxpayers to avoid reporting the black liquor tax credits as taxable income,” he wrote. He sees evidence that the cover-up goes all the way to the IRS’s Chief Counsel, an Obama appointee. (In one of many ironies in this twisted saga, one of the largest beneficiaries of the credits, Georgia-Pacific, is owned by the Koch brothers, who are not exactly known for their friendliness to the Obama Administration.)

There is evidence that Democrats left the original black liquor tax credits in place to win a key pro-Obamacare vote from Republican Sen. Olympia Snowe of Maine, where the credits helped a large pulp mill remain in business. (Republican legislators may not like big government in general, but they sure like it when it means bringing some pork home to their constituents. And it’s hard to say which party is worse about creating corporate welfare programs for companies that make generous campaign contributions.)

The Obama Administration and Democratic Congressional leaders also finagled with the credits and threats of additional credits to help “pay” for Obamacare. (Another civics lesson: The concept of "paying" for stuff in the Alice-in-Wonderland world of Congress has little to do with covering its costs. Don't try this at home, unless you want to take an extended tour of a federal correctional facility.)

Closing time
Paper companies are just about done squeezing the last drops from the black liquor credits. For example, Domtar said that the $222 million in earnings it booked last month because of favorable (and questionable) IRS rulings on the taxability of the credits is the last it will see of the government’s black liquor largess.

With no more black-liquor credits or other handouts coming down the pipe, suddenly big government doesn’t look so good to the paper industry.

Said the AF&PA’s Harman: “In the coming months, I look forward to working with the new Congress to help create policies that make businesses a partner in meeting the needs of society through sustainable regulations that balance environmental, social, and economic considerations.”

Translation: “We could stomach the Democrats’ big-government policies as long as the hand-outs exceeded the cost of anti-business regulations. But now that the money has stopped flowing, we might as well throw in our lot with the party that is likely to roll back those regulations.”

Related reading:

• WikiLeaks Reveals Praise for Dead Tree Edition from an Unlikely Source: What a consultant to the AF&PA said about our coverage of the black liquor scandal.
• What, Exactly, Is Black Liquor? Just Ask the Tax Man
• Why U.S. Pulp Mills Are Like NBA Players

  

WikiLeaks Reveals Praise for Dead Tree Edition from an Unlikely Source

I was surprised to learn today that WikiLeaks had published glowing praise for Dead Tree Edition's coverage of black-liquor tax credits. Especially considering the source.

"I love Dead Tree Edition's coverage of the issue. Complex situation, but the blogger boils it down pretty nicely," wrote Joseph de Feo in a 2010 email to colleagues at Stratfor, Inc. in reference to U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion.

WikiLeaks refers to Stratfor as "a company that fronts as an intelligence publisher, but provides confidential intelligence services to large corporations," which is why it published more than 5 million of the company's internal emails. The emails reveal that Stratfor did work for the American Forest and Paper Association, which supported the black-liquor tax credits. (Note this correspondence referencing a meeting between an AF&PA official and Sen. Max Baucus, D-Montana, a key player in the black liquor story who may become the next U.S. ambassador to China.)

 "The Small Business Jobs Act that Obama just signed included a CBP [Cellulosic Biofuel Producer] modification that supposedly nets the government nearly $2 billion by removing crude tall oil's eligibility for the tax credit -- and Dead Tree Edition says that it never would have qualified anyway," de Feo continued. "So the $2 billion in savings is made up. Which would be perfectly consistent with all we've already seen on black liquor. Accuse something (falsely) of being costly, shut it down and claim the (false) savings, skewing budget numbers."

"When corporations do this, doesn't someone usually go to jail?" concluded de Feo, who was a Stratfor analyst and briefer and is now the chief operating officer at Keyframe Policy Consulting, a Stratfor spinoff.

De Feo was referring to just one of about 50 articles Dead Tree Edition has published showing how billions of dollars from federal biofuels programs was diverted to black-liquor subsidies for U.S. pulp companies. As he noted, a recurring theme of the twisted tale is how the subsidies were used to skew federal budget numbers so that Congress could shell out more taxpayer money.

The most recent article in the series is IRS Inaction Leads to Another Black-Liquor Windfall for U.S. Paper Companies.

IRS Inaction Leads to Another Black-Liquor Windfall for U.S. Paper Companies

First there were the black liquor tax credits. Then there was Son of Black Liquor. And now there's The Creature From the Black Liquor Lagoon, another IRS handout to the U.S. paper industry

IRS inaction has led to an approximately $2 billion windfall for U.S. paper companies that burn black liquor, according to the reporter who originally broke the story about black liquor tax credits in 2009.

Steven Mufson of the Washington Post recently chronicled how paper companies originally thought the Alternative Fuel Mixture tax credits they received in 2009 would be taxable income. But when some companies changed to treating the credits as non-taxable, "IRS examination agents were told to stand down and not challenge the position that the refundable credits were not taxable income," one IRS employee said.

"If the IRS says nothing, the returns will go unchallenged, and the companies will keep the money," Mufson wrote. "The agency still has not issued a ruling — even as the clock runs on the statute of limitations for challenging the companies’ interpretation. For some companies, time could expire this fall."

International Paper originally set aside money to pay for income taxes on the $2.1 billion the IRS handed it for burning black liquor, a pulp byproduct. But it booked $700 million in additional income when it switched to treating the credits as non-taxable. All for doing something that had been standard operating procedure around the world for decades -- burning black liquor, a hazardous pulp byproduct, to provide energy for its pulp mills.

Mufson's tale of black-liquor boondoggles, lobbying by paper companies, and a politicized IRS is well worth the read. But the picture is actually worse than he presents in several ways:

•  Mufson puts the tab for the original black liquor credits as $8 billion, but that appears to be on the low side. Publicly traded companies reported $6.6 billion in credits. But we don't know what was handed out to privately held companies, which owned more than one-fourth of the country's kraft pulp capacity when the Alternative Fuel Mixture tax credits were being handed out.
• After the original tax credits program was ended, paper companies received additional money via what's come to be known as the Son of Black Liquor tax credits, officially known as the Cellulosic Biofuel Producer Credits. Paper companies have not been able to use all their credits yet, but when all is said and done the tab will probably be several billion dollars.
• IRS inaction hasn't been its only sin. Questionable rulings from the IRS (See IRS Ruling Helps Pulp Makers Keep Black Liquor Billions and Pulp Manufacturers Scratching Their Heads Over Son of Black Liquor Ruling, for example) made Son of Black Liquor possible and boosted the payouts for the original credits.

 Background: Since 2009, Dead Tree Edition has published more than 50 articles about the twisted tale of black liquor bailouts. How Democrats Helped Finance the Tea Party With Black Liquor provides a taste of the tale's many ironies.

Environmental Impact of Paper Goes Way Beyond Cutting Trees

Almost any discussion of paper manufacturing's environmental impact focuses on cutting trees and protecting forests. But five news reports in the past week provide a reminder of other environmental issues surrounding paper making:

• An Environmental Protection Agency study of a former paper Montana paper mill found “potentially dangerous levels of dioxins, heavy metals and other hazardous chemicals,” according to the Missoulian. The results could lead to the former Smurfit Stone property becoming a Superfund site, as well as concerns about what would happen if a levee on the property failed.
• The site of an abandoned paper mill in Tennessee has been proposed as a Superfund site because of PCB and dioxin contamination. 
• A trial began this week on charges that a lawyer duped buyers of a New York paper mill by not disclosing it had been declared a Superfund site. (Are you noticing a pattern here?) 
• International Paper received regulatory approval for an extensive upgrade of the wastewater treatment plant at its Bogalusa, LA mill. A failure of the plant under previous ownership last year caused a discharge of black liquor, an especially nasty and infamous pulp byproduct, killing hundreds of thousands of fish and fouling the Pearl River. 
• A power outage last week at a Glatfelter mill in Pennsylvania caused the release of 6,000 gallons of pulp and contaminated water into a nearby stream. 

Regardless of how it sources its fiber, can a paper company be considered green if it fouls waterways, spews high levels of toxins and greenhouse gases into the air, uses carcinogenic additives, or reveals as little as possible about its environmental impact? No, not when there are competitors using best practices to minimize emissions, operating mills that are nearly carbon neutral, switching to safer materials, and going way beyond what the law requires in reporting their environmental practices and measurements.

Related articles:

• What Exactly Is Environmentally Preferable Paper?
• What Nasty Chemicals Are Lurking in Your Paper?  
• Three, or Maybe Four, Green Magazine Pioneers  
• Ecologomania and Printed Products

NewPage's Fraudulent Deals Started in 2007, Creditors Claim

Four years before it went into bankruptcy protection, NewPage Corp. was essentially structured as a giant scheme to defraud suppliers and other creditors for the benefit of its owners, a creditors committee charges.

The creditors committee wants the bankruptcy court to declare as “fraudulent transfers” the highly leveraged 2007 transactions that enabled NewPage to become North America’s largest producer of magazine-quality papers and the 2009 refinancing of that massive debt.

The Official Committee of Unsecured Creditors is also trying to claw back millions of dollars in “excessively high” management fees paid to leveraged buyout firm Cerberus, NewPage’s primary owner, and millions more in bills paid to two suppliers that are subsidiaries of Stora Enso, a European paper company that owns 20% of NewPage.

The U.S. Bankruptcy Court appointed the committee to advocate for the interests of companies that were left holding accounts receivable but no collateral when NewPage filed for Chapter 11 bankruptcy protection on Sept. 7, 2011. The committee consists of representatives of organizations that stand to lose millions of dollars resulting from NewPage’s insolvency, including the Pension Benefit Guaranty Corporation, Deutsche Bank, OMNOVA Solutions (a major supplier of specialty chemicals to the paper industry), and United Steelworkers.

NewPage’s owners have challenged whether the committee has the right to press its claims in bankruptcy court. The court has not ruled on that question yet.

Among the creditors’ claims are:

Destined to fail
NewPage’s 2007 acquisition of Stora’s North American paper mills left it “with a crippling amount of new debt, but without any new value to show for it. No new equity was injected whatsoever. The target Debtors [the various NewPage subsidiaries] simply had new owners. Hobbled by this

Mr. Tree Gets the Axe

After two years in the #43 slot, D. Eadward Tree, the writer of this blog, has been pruned from The RISI Top 50 Power List of the most influential people in the global pulp and paper industry.

The respected paper-industry publisher came out with its new list today, and I wasn't on it. I had to make way for the likes of Greece ("Tell me more, tell me more"), Starbucks, the iPad3, and a bunch of people who actually work in the pulp and paper industry. The good news is that the founder of TwoSides made the list, while Toshiba did not.

RISI had previously honored me primarily for Dead Tree Edition's coverage of the black liquor tax credits, a boondoggle that allowed U.S. pulp manufacturers to hijack a federal biofuel program.

But, as I pointed out last year in objecting to my repeat appearance on the list, my many articles on the subject (51 and counting) have actually changed nothing. The pulp companies collected their billions of dollars from the original black liquor tax credits, are still cashing in on Son of Black Liquor, and still haven't figured out how whether the income is taxable.

Related articles:

• Rupert, Weiner and Cardboard Animals: 5 Who Should Be Ahead of Me on RISI’s Top 50 Power List  
• Dead Tree Edition Tops Twitter and the World Cup
• Not Dead Yet: Son of Black Liquor Has Not Been Vanquished, Contrary to News Reports 
• Who in the World Is D. Eadward Tree? 
• 1/1: Interview with D. Eadward Tree, Chief Arborist at Dead Tree Edition

Not Dead Yet: Son of Black Liquor Has Not Been Vanquished, Contrary to News Reports

It’s alive!

Recent media reports about the death of the Son of Black Liquor tax loophole for U.S. paper companies turned out to be greatly exaggerated.

The Washington Post stated Thursday that the transportation bill approved by the Senate the previous day would be paid for partly by ending a tax credit for black liquor, a pulp byproduct.

“At Last, the Final Chapter in the Black Liquor Saga,” Mother Jones trumpeted the same day. Like the Post, it subsequently issued a correction.

The legislation at one time indeed included language that would have made black liquor ineligible for Cellulosic Biofuel Producer Credits (CBPCs, also known as Son of Black Liquor credits), for an estimated savings of $2.8 billion, as Dead Tree Edition reported last month.

U.S. Paper Companies May Lose Son of Black Liquor Loophole

Senate Finance Committee Chairman Max Baucus is trying to close the Son of Black Liquor tax loophole that has already provided U.S. paper makers with a windfall of more than $1 billion.

The committee's staff estimates the move would save $2.786 billion over the next four years, which Baucus would use to help pay for highway construction and other infrastructure projects. The staff has not revealed the basis for its calculation, a tricky matter because it requires assumptions about the future taxable income of more than a dozen paper companies.

"Black liquor qualified for the alternative fuel mixture [AFM] tax credit and the cellulosic biofuels tax credit," a news release from the committee noted Friday. "Congress never intended for black liquor to qualify for these credits and, in 2010, prohibited the credit for black liquor sold or used on or after January 1, 2010. This provision would prohibit taxpayers from claiming the alternative mixture credit or the cellulosic biofuels credit on any new or amended returns made on or after February 3, 2012."

The committee is scheduled to discuss the Highway Investment, Job Creation and Economic Growth Act of 2012 tomorrow.

Ruling Will Boost Pulp Makers' Gains from Black Liquor Boondoggle

A favorable ruling from a Congressional committee will add millions more dollars to what U.S. pulp and paper companies gained from the infamous black liquor tax credits.

KapStone Paper and Packaging announced yesterday that the Joint Committee on Taxation had accepted its position that the $186 million in black liquor credits it earned in 2009 are not taxable income. As a result, it is claiming $63.6 million in "gross unrecognized tax benefits and accrued interest expense" -- and Deutsche Bank upgraded its stock from "Hold" to "Buy".

Pulp manufacturers exploited a loophole in a renewable-fuel tax credit program to gain at least $8 billion in direct payments from the federal government in 2009. The government "rewarded" them for burning black liquor, a pulp byproduct, to power their operations, which they would have done even without the tax credits.

"The 'black liquor' scandal is the most notorious recent instance of the pitfalls of congressional efforts to pick and subsidize winners," Michael J. Graetz, a tax law professor at Columbia University, wrote recently in Wired magazine.

Black Liquor Makes the Top Ten

A USA TODAY editorial yesterday ranked black liquor tax credits #6 on the list of “10 terrible tax breaks” that should be eliminated or scaled back.

"'Black liquor' = much green," the unsigned editorial said. "Paper companies make a mockery of tax law by claiming a credit meant to promote biofuels. They take a flammable byproduct of the pulping process known as black liquor, mix it with diesel fuel and — presto! — they are promoting alternative fuels and eligible for massive tax breaks. (Cost: $6.6 billion.)"

After many months of crusading to bring to light this boondoggle for a pulp byproduct, I'm happy that in less than a month a second major newspaper has taken notice -- especially because it cited the $6.6 billion figure that was first reported by Dead Tree Edition.

But it's too bad the USA TODAY editorial got only half the story. The $6.6 billion number (originally reported as $6.5 billion, but then the IRS kicked in a sweetener) represents only what publicly traded pulp manufacturers earned from alternative fuel mixture tax credits.

It doesn't include money paid to privately held pulp makers, which the United Steelworkers claims was $5 billion for Georgia-Pacific alone. And it doesn't include another biofuel boondoggle nicknamed Son of Black Liquor, which will end up costing taxpayers at least $1 billion and perhaps far more.

The editorial doesn't mention that it's too late to do anything about the fuel-mixture credits. That money has already been paid out to pulp companies before black liquor was declared ineligible for the program. But the Son of Black Liquor credits are likely to be claimed for several more years.

The other newspaper that has come out recently against black liquor tax credits was The Washington Post, which referred to Son of Black Liquor as "a paper subsidy that must be stopped". It noted that "tax credits for black liquor . . . served no energy policy purposes and increased the federal debt to boot."

Related articles:

• Son of Black Liquor Finally Enters the Limelight 
• Black Liquor Tax Credits: The Gift That Keeps on Giving To Paper Mills -- and Taking From Taxpayers
• Advancing Economic Freedom: An interesting attack on "green" subsidies as "corporate welfare" from none other than Charles G. Koch, the controversial head of Georgia-Pacific's parent company.

Son of Black Liquor Finally Enters the Limelight

Dead Tree Edition’s long – some would say obsessive – campaign to raise awareness of the Son of Black Liquor giveaway to pulp companies paid off big time today in the form of a major Washington Post article.

Steven Mufson, a Post reporter who helped bring the original black-liquor credits to light in 2009, wrote today of “a new binge of tax breaks” for companies that burn the pulp byproduct to produce energy, as they have been doing since the 1930s.

“It was not the intent of Congress to reward that behavior, but the industry and its accountants persuaded the Internal Revenue Service to allow black liquor to count as an alternative fuel in 2009,” Mufson wrote. “Under that program, the paper industry received more federal money than almost any industry outside the auto sector.”

The new tax breaks come in the form of cellulosic biofuel credits, he noted, which “can be applied in future years, slashing tax bills perhaps as late as 2015.”

Mufson, by the way, did not use the phrase “Son of Black Liquor” as first the The Vancouver Sun and now Dead Tree Edition do in reference to the cellulosic biofuel giveaway. But that’s exactly what today’s article is about. (I should know; I provided him with links to financial reports and other background information for the article.)

The article highlights the odd IRS ruling that made pulp manufacturers eligible for Cellulosic Biofuel Producer Credits and details how some companies have already collected hundreds of millions of dollars.

Mufson cites a Congressional Budget Office estimate that the original black liquor credits were worth $4 billion to the U.S. pulp and paper industry – an erroneous estimate that CBO has never corrected. Publicly traded companies reported more than $6 billion in payouts from that program, and privately held companies probably raked in at least a couple of billion more.

For months, it seemed that only Dead Tree Edition and a couple of environmental groups were writing about the black liquor credits. But the Washington Post article is just the latest in a recent string of mentions from various media, including:

• Energy Déjà Vu: Obama Must Break with Failed U.S. Policies: The original black liquor credits were the "most scandalous" of pork-barrel energy programs, Yale professor Michael Graetz wrote yesterday, because they "increased, rather than reduced, petroleum use, while bestowing about $8 billion of government largesse on the paper industry from 2007 to 2009."
• Biorefining deals underway, project financing picks up: "The black liquor and the so-called son of black liquor credits have incentivized pulp and paper mills to burn their spent cooking liquor for energy rather than find other outlets," Biorefining magazine said last week.
• Pulp, Paper Companies Amend Tax Returns: "The cellulosic biofuels industry might produce a maximum of 17 million gallons this year, but the pulp and paper industry continues to be the biggest benefactor of advanced tax credits meant to spur renewable fuels, with pulp and paper companies working to recoup billions in tax credits by amending prior-year tax returns," DTN/The Progressive Farmer reported last month.
  
• Black Liquor Credits Still Flowing: Printing Impressions' environmental columnist (and long-time friend of Dead Tree Edition) Gail Nickel-Kailing, summed up the black liquor credits aptly a month ago: "Suffice it to say, that if there is a loophole to be found, there is someone (or more) lined up to take full advantage of it."
• And then there's the quotation from a British Columbia newspaper this month about a 1963 boiler explosion at a pulp mill: “The liquid [nicknamed black liquor] inside is a very caustic acid, so they said that it was even hard to identify the dead because they turned black and it started to eat away their flesh.”

If you just can't get enough of this strange, twisted tale of black liquor tax breaks, click here to read all (47 and counting) Dead Tree Edition articles on the subject.

Cost of New Black Liquor Boondoggle Reaches $1.1 Billion

The cost of the "Son of Black Liquor" giveaway to U.S. pulp and paper companies officially passed $1 billion last week and could eventually grow much larger.

A dozen publicly traded pulp manufacturers recently reported actual or expected federal Cellulosic Biofuel Producer Credits (CBPC) totaling $1.1 billion in their annual and quarterly reports.

That number includes only $65 million, so far, for #1 pulp manufacturer International Paper and nothing from #2 Georgia Pacific, which is privately held. Both giants seem likely to join or surpass Packaging Corp. of America, Weyerhaeuser, and Domtar, each of which recorded or expects to record more than $200 million (pretax) in CBPCs.

CBPC is supposed to subsidize the production of environmentally friendly biofuels, but in the case of pulp manufacturers it’s a pure giveaway of taxpayer money. The credits are being shelled out to the manufacturers for burning black liquor as a power source, a standard industry practice, in 2009, but the manufacturers didn’t even know they would qualify for the credits until 2010.

IP recorded 2010 tax credits on less than 2% of the black liquor it burned in 2009. That was the portion that it did not mix with diesel fuel to take advantage of the original black liquor tax credits, which exploited a loophole in the federal Alternative Fuel Mixture (AFM) program.

IP has not decided whether to repay any of its $2.1 billion in AFM credits to get the more lucrative, but taxable, CBPC funds. But its 2010 annual report says it might end up switching some or all of its AFM credits for CBPC. That would be worth up to another $2.1 billion pretax and probably at least $400 million after taxes.

PCA leads in Son of Black Liquor credits so far, partly from paying back AFM credits to get $146 million ($33 million net gain) in CBPC, plus another $107 million for the “proprietary biofuel process” at its Filer City, Michigan mill. It estimates it has another $200 million in CBPC available to offset future income taxes until the credits expire in 2015.

Rock-Tenn plans to trade its AFM credits for CBPC over the course of several years, resulting in an estimated pre-tax gain of $112 million. Pulp makers that have claimed or estimated less than $100 million from Son of Black Liquor are Temple-Inland, Clearwater Paper, Wausau, Rayonier, Buckeye Technologies, Kapstone Paper and Packaging, and Mead Westvaco.

Nine companies that benefited from the original (AFM) black liquor credits have not claimed or estimated Son of Black Liquor handouts – AbitibiBowater, Appleton, Boise, Graphic Packaging, Glatfelter, NewPage, SAPPI, Smurfit-Stone Container, and Verso. Several of these companies are unlikely to benefit because of their history of unprofitability; CBPC can only be used to offset income taxes.

For further background:

• U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion: Not a cent of the taxpayer money tied up in eco-fuel subsidies involving black liquor has helped the environment. Most of the money didn’t even benefit the companies that produce and burn black liquor.
• How Democrats Helped Finance the Tea Party With Black Liquor: Georgia Pacific, which is owned by the Koch Brothers, has benefitted from Democrats’ failure to close the black liquor tax loopholes.
• Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits: A quick rundown of the original black liquor tax credits, Son of Black Liquor, and Grandson of Black Liquor.

Black Liquor Tax Credits: The Gift That Keeps on Giving To Paper Mills -- and Taking From Taxpayers

Six months after questioning whether it would benefit from "Son of Black Liquor", International Paper announced Thursday it got $40 million of the bogus eco-fuel tax credits.

The giant papermaker received the Cellulosic Biofuel Producer Credits in the 4th Quarter of 2010 for burning black liquor, a pulp byproduct, to power its pulp mills in 2009. As with the original black liquor credits -- the Alternative Fuel Mixture Credits program that gave more than $2 billion in taxpayers' money to IP during 2009 -- CBPC (Son of Black Liquor) was intended to spur development of new bio-fuels but mostly rewarded pulp mills for doing what they would have done anyway.

The Son of Black Liquor credits IP claimed were "just the benefit on black liquor gallons that we ran in 2009 but did not mix" with diesel fuel, Timothy Nicholls, the company's CFO, said Thursday during a conference call with stock analysts. Black liquor had to be mixed with diesel to qualify for the original black liquor credits but not for Son of Black Liquor.

"IP cannot quantify the value of additional CBPC because it depends on future taxable earnings, but it could be significant," a company presentation said.

Less than a year ago, IP was apparently not bothering to seek CBPC money because it believed -- as did Dead Tree Edition -- that black liquor would not qualify. And even after an odd IRS ruling that opened the door, Nicholls told analysts this past summer "We don't see a huge benefit for the company."

Even now, Nicholls is unsure about the future benefits from Son of Black Liquor. IP would have to return some of the AFMC money to receive the more lucrative CBPC credits. Though it's been more than a year since pulp mills could earn credits under either program, the tax status of the AFM money is still unclear.

"There's some reason to believe that the proper conclusion maybe non-taxable," Nichols said. "If we come to that conclusion, then economically it just doesn't make sense to refund or payback the credit that we've already received and apply for the CB credit."

Rock-Tenn sees things differently. The packaging manufacturer's most recent annual report says AFMC "is not taxable for federal or state income tax purposes." But it estimates it will eventually net $112 million by paying back the original black liquor credits to get the more lucrative Son of Black Liquor money.

Packaging Corporation of America, which has about one-eighth of IP's pulp capacity, recorded $135.5 million in Son of Black Liquor credits last year. Domtar, which is also the #1 beneficiary of Canada's black-liquor program, reported $127 million in Son of Black Liquor credits last quarter.

Those earnings reports are news to Congress' Joint Committee on Taxation, which in December estimated that the government's cost for all "credits for alcohol fuels", including CBPC, for fiscal years 2010-2014 would only be $100 million.

For more information on the black liquor boondoggles, please see:

• Son of Black Liquor Money Starts Rolling In For U.S. Pulp Makers 
• How Democrats Helped Finance the Tea Party With Black Liquor
• U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion
• All 45 (and counting) Dead Tree Edition articles on black liquor

Son of Black Liquor Money Starts Rolling In For U.S. Pulp Makers

Much to their amazement, U.S. pulp manufacturers are discovering that the Son of Black Liquor tax loophole is starting to pay off or will soon do so.

International Paper reversed its previous statements on the subject a few days ago, acknowledging that its gains could be "substantial" from the Cellulosic Biofuel Producer Credits program (commonly called Son of Black Liquor in conjunction with the pulp and paper industry). The country's largest pulp manufacturer scoffed early this year at the possibility of receiving any money from CBPC and said in July it did not foresee much benefit.

IP's most recent assessment was underscored by some of the first reports of 3rd Quarter earnings by smaller pulp makers. Temple-Inland, with less than one-fourth of IP’s pulp-making capacity, reported net gains of $83 million from Son of Black Liquor. Buckeye Technologies, with less than one-tenth of IP’s capacity, booked $51.3 million in after-tax profit from the program.

Those companies recorded Son of Black Liquor earnings and others are estimating 4th Quarter earnings because recent Internal Revenue Service guidance clarified how pulp makers can pay back Alternative Fuel Mixture (AFM) subsidies, the original black liquor tax credits, to cash in on the more lucrative Son of Black Liquor tax credits.

Both programs were established to encourage production of environmentally friendly fuels. But in the case of pulp mills, neither has what environmentalists call "additionality" -- that is, they had no favorable impact on the environment.

The federal government doled out, and is still doling out, billions of dollars to pulp and paper companies for doing in 2009 what they would have done anyway -- following the standard industry practice of burning black liquor, a pulp byproduct, to power their mills.

When CBPC started last year, pulp manufacturers did not bother to register for the program because the regulations indicated it was only for motor fuels and motor fuel additives. Even after the IRS issued a controversial ruling that made black liquor eligible for the program, industry analysts predicted that Congress would soon close the loophole.

But Congress went on its pre-election recess without taking up the issue or receiving a requested study of the loophole's impact. Meanwhile, pulp mills seem to be having no trouble getting IRS approval to participate in CBPC.

IP plans to carry forward at least some of Son of Black Liquor credits into future years, according to the company's CFO, Timothy Nicholls.

“If we see that there's a benefit there that we can realize, we'll try to time it, such that anything that we're giving back is timed close to when we would file an amended return and get the benefit from the cellulosic biofuel credit,” he said during the company’s recently quarterly earnings conference call.

“We're currently assessing where we are,” Nicholls said. "We can't quantify the potential benefit of the cellulosic tax credits at this time, but we think that, potentially, it could be significant.”

Temple-Inland didn’t have to repay any of its AFM credits to get the $83 million tax gain. It claimed Son of Black Liquor credits only on production from the 1st Quarter of 2009 when it was not participating in the AFM program. It has not indicated whether it would pay back any AFM money to receive additional Son of Black Liquor credits.

Related articles:

• How Democrats Helped Finance the Tea Party With Black Liquor: Congress' failure to stop the original black liquor tax credits or to shut off Son of Black Liquor has probably enriched a company whose owners are major financial backers of the Tea Party and of climate-change denial campaigns.
• U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion: Rather than closing off loopholes for black liquor, Congress has manipulated the loopholes as an excuse for spending even more taxpayer dollars.
• Congress and Paper Companies Covet 'Son of Black Liquor' Funds

How Democrats Helped Finance the Tea Party With Black Liquor

Black Liquor

More than $1 billion in federal money probably flowed to key backers of the Tea Party because the Democratic-controlled Congress failed to shut off black liquor tax credits.

The money was paid last year to paper giant Georgia Pacific, which is part of the Koch Industries conglomerate that has been the center of much political controversy and media coverage of late.

The coverage and often-heated discussions – including an environmental group's anti-Koch spot that debuted on a Times Square superscreen last week -- have overlooked the ironies of GP’s black liquor windfall.

Democratic Congressional leaders complained in March 2009 when they learned that pulp manufacturers like GP were exploiting a loophole in a federal biofuel program. But they failed to close the loophole, enabling the companies to rake in billions of dollars in direct subsidies from the IRS for basically doing what they and pulp makers around the world have been doing for decades – burning black liquor, a pulp byproduct, to power their mills.

Environmental groups have attacked Koch’s owners and executives for being, in the words of Greenpeace, “a financial kingpin of climate science denial and clean energy opposition.” Liberals, including Obama himself, also point to the generous support of Koch’s owners and executives for Tea Party organizations and conservative political candidates.

And conservatives are crying foul over the Obama Administration’s alleged persecution of Koch. Six Republican senators recently requested an investigation of whether the Internal Revenue Service leaked confidential tax information about the company to an Obama advisor as part of a campaign to harass conservative political donors.

Now for the ironies:

Irony #1, Alternative fuel mixture (AFM) tax credits: This federal program was supposed to subsidize new eco-friendly fuels, but manufacturers of kraft pulp spotted a loophole that enabled them to get the credits for using black liquor as a fuel, which they were doing anyway. A United Steelworkers publication claims GP, the country’s #2 maker of kraft pulp, raked in $5 billion in black liquor tax credits. But, based on the company’s pulp-making capacity, the number was more likely in the $1 billion to $1.5 billion range.

In any case, a program that was intended to subsidize green alternatives to petroleum-based fuels paid out huge sums to a conglomerate that is mostly an oil and chemicals company and that generously funds attacks on renewable-energy programs and claims of human-caused climate change.

Irony#2, ObamaCare: Why, after fuming about the black liquor loophole in the spring of 2009, did Congress and the Obama Administration not try to close it? The best theory is that they did a deal with Sen. Olympia Snowe, R-Maine and a champion of the pulp and paper industry, so that they would have at least one GOP yes vote in the Senate Finance Committee for the Administration’s sweeping healthcare legislation.

Democrats' use of black liquor money to grease the skids for healthcare legislation could backfire: Americans for Prosperity, a Tea Party-affiliated group that was started and largely funded by Koch's owners, has spun off an organization called Hands Off My Healthcare, which is campaigning against pro-ObamaCare Congress members who are seeking re-election.

Irony #3, Internal Revenue Service: The IRS came under suspicion when a senior Administration official told reporters in August, "So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know, Koch Industries is a multibillion dollar business."

The Republican senators seeking an investigation of a possible IRS leak responded, "The statement that Koch is a pass-through entity implies direct knowledge of Koch's legal and tax status, which would appear to be a violation." Koch Industries has issued a statement saying that it’s a corporation and pays corporate taxes.

The suspicion of the IRS is a strange turn of events considering how helpful, perhaps unwittingly, the agency has been to Koch’s Georgia Pacific.

IRS rulings on black liquor have been favorable to all kraft-pulp manufacturers, enabling them to claim alternative fuel-mixture credits even on the portion of black liquor that has no energy value, such as water. The result was about $6.6 billion paid out to publicly traded pulp makers, plus probably at least $2 billion more to privately held companies like GP.

But the agency’s strangest ruling on the tar-like pulp byproduct appears to be of special benefit to GP. The “Son of Black Liquor” ruling made black liquor eligible for another green-energy program, Cellulosic Biofuel Producer Credits (CBPC), despite a law saying that only EPA-approved motor fuels were eligible.

These tax credits are twice as generous as the original black liquor credits, but they can only be used to offset income taxes, making them virtually worthless to the many unprofitable and marginally profitable pulp and paper companies. The country’s #1 pulp maker, International Paper, has said it isn’t sure whether it will have enough tax liability to justify paying back any of its $2.1 billion in AFMs to get the new tax credits.

Not so with Koch. With an estimated $100 billion in annual revenue, much of it from its presumably profitable oil sector, the big conglomerate should have no problem making immediate use of the approximately $2 to $3 billion in tax credits it would receive if it returned all of its original black liquor subsidies.

Dead Tree Edition has published more than 40 articles on the strange saga of black liquor tax credits. Here are a few that provide more background on these eco-credits that did nothing for the environment (including links to original documents so that you know I’m not making this stuff up):

• U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion: For the next several years, taxpayers will be footing the huge bill for Congressional shenanigans regarding pulp byproducts, with most of the money going to hide increases in the federal deficit rather than to pulp manufacturers.
• Congress and Paper Companies Covet 'Son of Black Liquor' Funds: Plans to use, or not use, Son of Black Liquor tax credits vary widely from company to company.
• What, Exactly, Is Black Liquor? Just Ask the Tax Man: If you want to understand that once-obscure, now infamous pulp byproduct known as black liquor, you can turn to an unlikely source – the lawyers at the Internal Revenue Service.

And here’s more background on Koch Industries, the billionaire brothers who own most of it, and their political activity:

• Meet Koch Industries: The green group that produced the Times Square provides chapter and verse on environmentalists’ and liberals’ complaints about Koch and the Koch brothers.
• Shutting Up Business: A lengthy Wall Street Journal opinion piece presents the Obama Administration’s attacks on Koch Industries as part of a broader campaign to stifle business support for conservative candidates.
• Tea Party movement: Billionaire Koch brothers who helped it grow: An interesting profile of the Koch brothers and how they inherited their libertarian leanings from their John Bircher father.
• A Consistent, Principled Effort: Koch Industries describes its commitment to "liberty and free-market principles" as well as its charitable and advocacy giving.

U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion

The cost of "green" energy subsidies involving the pulp and paper industry shot well past $30 billion today -- with not a cent of it doing anything to help the environment.

President Obama today signed the Small Business Jobs Act of 2010, a package of goodies that is supposedly deficit neutral partly because of nearly $1.9 billion in "savings" from closing the non-existent "Grandson of Black Liquor" loophole. The alleged savings come from making crude tall oil, a highly corrosive pulp byproduct, ineligible for Cellulosic Biofuel Producer credits, which are intended for alternative motor fuels.

Because crude tall oil has never qualified for such credits and by all rights never could have, the law's provision is just a Congressional ruse to add to the federal deficit while pretending not to do so.

Regular readers of Dead Tree Edition know too well the sad story of how American taxpayers have been ripped off with black liquor tax credits, Son of Black Liquor, and Grandson of Black Liquor, but the story bears re-telling.

The idea of using pulp byproducts to fleece taxpayers first came to light early last year when some paper companies revealed they had hijacked another biofuel program. Alternative Fuel Mixture Credits were supposed to encourage greater use of biofuels, but the paper companies snagged billions in such credits for burning black liquor as a fuel source, which they had been doing for decades anyway.

Despite howls of protest from Congressional leaders, Congress did nothing to plug this loophole and simply let the law expire at the end of 2009. Aided by friendly rulings from the IRS, publicly traded pulp manufacturers received well over $6 billion in black liquor tax credits, and privately held companies probably received a couple of billion more.

A good whipping boy
But Congress didn't completely ignore the black liquor tax credits. Smart politicians know a good whipping boy when they see one, especially when they can whip up money for pet programs.

Riding public disgust with the original black liquor tax credits, Congressional Democrats proposed closing the "Son of Black Liquor" loophole. That is, they made black liquor ineligible for CBP credits starting this year. Never mind that even pulp makers didn't think black liquor would qualify for the credits.

A compliant Joint Committee on Taxation said that closing the non-existent loophole would save a bit more than $23 billion, and Congress then applied the "savings" toward "paying for" ObamaCare this past spring. The watchdogs of the press mostly chewed on and regurgitated Congressional press releases touting the resulting savings that supposedly helped make ObamaCare deficit-neutral.

The IRS got back into the act this summer with an odd ruling that made black liquor burned prior to this year eligible for CBP credits. It has already approved two pulp manufacturers for the credits, while others that have lined up at the trough are awaiting word on their applications. Preliminary indications are that the net value of the credits to paper companies will be "only" in the hundreds of millions -- unless Congressional bill writers decide to close this latest loophole and use the savings for another new project.

So let's recap the tab -- probably $8 billion-plus for the original black liquor credits (the only money in this story that actually went to the paper industry), $23.6 billion for Son of Black Liquor in ObamaCare, untold millions for pre-2010 Son of Black Liquor, and nearly $1.9 billion for Grandson of Black Liquor.

So when your daughter or granddaughter asks you in a few years why the U.S. didn't do more to wean itself from dirty energy sources and foreign oil imports, just tell her we were too busy adding to the federal deficit while pretending to be fiscally responsible.

For more details on the black liquor saga, please see:

• Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits 
• Congress and Paper Companies Covet 'Son of Black Liquor' Funds  
• IRS Ruling Helps Pulp Makers Keep Black Liquor Billions 
• ObamaCare's Black Liquor Tab: $23.6 Billion 

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