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Background on Billion Dollar Black
Liquor Loophole
compiled by Environmental
Paper Network - 828/251-8558
A newly discovered tax
loophole in a 2005 federal transportation bill
is costing taxpayers billions of dollars,
increasing consumption of fossil fuel and
threatening to strike a catastrophic blow to the
recycled paper collection and manufacturing
industries.
1. Big paper companies could
each get hundreds of millions of dollars in cash
payments from the Treasury this year by taking
advantage of an alternative fuels tax credit
that their consultants found in the 2005 highway
bill and devised a way to exploit.
International Paper in March 2009 received a
first payment of $71.6 MILLION for ONE MONTH of
burning the fuel last year, and one report
estimates they could stand to receive payment of
up to 3.7 BILLION. The alternative fuels clause,
which appears on page 804 of the massive 2005
highway bill, was intended primarily to increase
the use of ethanol and other biofuels in cars
and trucks.
2. Paper companies, in a
scheme devised by consultants, are now being
richly rewarded for the long-standing practice
of using a byproduct of the wood pulping process
known as "black liquor" as a fuel to run their
mills. The paper companies, which had not
applied for these benefits before the end of
last year, have not needed to alter or improve
their existing business practices to qualify for
the tax breaks. Burning the fuel known as
"black liquor" dates to the 1930s, and paper
companies have consumed nearly all of the
byproduct since the 1990s. In order to carry out
the scheme, paper companies have been now simply
ADDING a small amount of diesel fuel to each
gallon of black liquor in order to be a
qualifying mixed fuel type and then applying
with the IRS to be registered as an "alternative
fuel mixer" and to claim the credit.
3. A recent Goldman Sachs report
on the loophole and its exploitation states that
paper companies use of this tax credit is "the
opposite of the what the lawmakers intended when
creating it." That's because it actually
results in an INCREASE in the use of fossil
fuel, thanks of the schemes method of adding
diesel fuel to the black liquor. Reports from
JP Morgan and Goldman Sachs anticipate
Congressional outrage when the loophole and the
massive payments are discovered, yet, to date
clear Congressional action has not occurred.
Various reports estimate that the loophole could
result in $6-8 BILLION in payments to the 10
largest paper companies. An average size U.S.
pulp mill can burn more than 175 million gallons
of black liquor a year in its recovery boilers,
which implies an annual tax credit of $90
million, according to the J.P. Morgan report.
(In comparison, a report by Congress cited the
cost of a recent vote to extend the tax credit
into this year as about $61 million. This was
before the paper companies figured out how to
exploit it.)
4. In addition to the insult and injury to
taxpayers, the massive payments are also
eliminating the functioning of the free market
in the paper industry and creating a
disproportionate advantage for certain types of
producers, eliciting frustration and anger from
some segments of the industry and across
Canada. This is not only dangerous for the
marketplace, but the losers include more
environmentally responsible producers using more
efficient grades of paper or recycled paper
content. Such mills, which will be critical to
developing a green jobs economy, are being put
at severe disadvantage. In fact, these billions
of dollars of payments are encouraging the
overproduction of paper, suppressed prices, and
additional emissions of greenhouse gases at the
most polluting and least efficient mills in
America, JUST TO BURN THE FUEL AND CLAIM THE
CREDIT AND COLLECT THE FREE MONEY.
5. Burning wood and
black liquor is not always "renewable" and is
definitely never carbon neutral as direct
emissions of carbon dioxide occur and black
carbon, or soot, is released. Much of these
claims being made are greenwashing if we are
talking about burning the same stuff the paper
companies have been burning for decades and we
aren't talking about increasing efficiency,
employing good science and enhanced forest
management, and switching to low carbon
production systems like collecting and making
recycled paper.
6. This is a scandal of
outrageous proportions costing strapped
taxpayers millions, and likely billions of
dollars. After suffering through financial
bailouts with no clear benefit, and bonus
scandals, and the rest, to add an additional
grab of billions of taxpayer dollars for no
benefit to citizens deserves a strong and
decisive response to close this loophole and end
its perverse incentives. We are asking
Congressional leaders to come to the aid of
taxpayers and close this loophole.
Key Articles:
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/27/AR2009032703116.html
http://www.thenation.com/doc/20090420/hayes
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