14 Nov 2009, 6:03pm
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Paper Mills Drunk on Black Liquor

Biofuel Tax Incentives Become Black Liquor Boondoggle

by Chris Clayton, DTN ProgressiveFarmer.com, Nov 13, 2009 [here]

OMAHA (DTN) — Thanks to a 2008 Internal Revenue Service ruling, American taxpayers will shell out at least $6 billion this year to subsidize an “alternative fuel” that has actually been the main fuel used in paper mills for decades.

In the first six months of 2009, payments to the paper industry for black liquor could reach $2.5 billion, according to the Congressional Joint Committee. (Photo courtesy of Wikimedia Commons)”Black liquor” sounds like a trendy new drink, but in fact it’s a byproduct of the paper-making process, which paper mills use to run their boilers. Responding to inquiries from paper companies late last year, the IRS says black liquor could qualify for a 50-cent-a-gallon alternative-fuel subsidy Congress created in the 2005 highway bill and extended in the 2007 energy bill.

The provision’s intent seemed to be spurring the development of new fuels. It was only expected to cost $265 million over five years.

For the struggling pulp and paper industry, the subsidy is very good news, turning some money-losing operations into profit makers. It’s bad news for supporters of ethanol, biodiesel and other renewable fuels.

Tom Buis, the chief executive officer of renewable-fuels group Growth Energy, says unhappiness over the loophole could discourage Congress from expanding renewable-fuels subsidies or creating new ones. By his understanding of Congress’s intent, paper mills “would never qualify” to the degree they have. “The cost,” he noted, “is pretty significant.”

Indeed, owing to the black-liquor controversy, Congress may not renew the 50-cent credit, which is scheduled to expire at the end of this year. But even assuming the credit lapses, the controversy continues. A $24 billion cellulosic credit dubbed “son of black liquor” is in line to replace it. … [more]

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