Letter about black liquor boondoggle

Posted: 21 April 2009 in Carbon, Subsidies

A group of US NGOs has written to the Senate Committee on Finance to demand action on stopping the massive tax rebate to pulp and paper companies, which are supposed to be for using “alternative fuels” but in the case of the paper industry are for business as usual.

April 20, 2009

Honorable Max Baucus, Chairman
Honorable Chuck Grassley, Ranking Member
Committee On Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 20510-6200

Dear Senator Baucus and Senator Grassley,

We, the undersigned social and environmental organizations, representing members nationwide, appreciate your investigation into the tax credit loophole in the SAFETEA-LU 2005 transportation bill, which is costing taxpayers billions of dollars while perversely increasing consumption of fossil fuel in contravention of the Act’s intention. We urge you to end this loophole as soon as possible.

Paper companies that normally rely on biomass for fuel are receiving millions of dollars in payments from the Treasury by increasing their use of fossil fuel. International Paper in March 2009 received a payment of $71.6 million for one month of adding diesel fuel to its biomass fuel. The alternative fuels clause of SAFETEA-LU, was intended to increase the use of ethanol and other biofuels in cars and trucks, not increase the use of fossil fuels.

Paper companies are adding a small amount of diesel fuel to each gallon of black liquor fuel historically consumed by mills in order to apply to the IRS and become registered as an “alternative fuel mixer” and claim a multimillion dollar tax credit.

A recent Goldman Sachs report on the loophole states that paper companies use of this tax credit is “the opposite of the what the lawmakers intended when creating it.” [1] That’s because it actually results in an increase in the use of fossil fuel, thanks to the scheme’s method of adding diesel fuel to the black liquor. Reports cited in the Washington Post and The Nation estimate that the loophole could result in $8-10 billion in payments to the 10 largest paper companies alone. 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 a J.P. Morgan report cited by the Washington Post. (Also, according to the Washington Post, this past fall the Joint Committee on Taxation computed the cost of extending the tax credit for three months and projected it would cost a manageable $61 million.[2] This was before the paper companies figured out how to exploit it.)

The massive payments adversely bias the free market in an ecologically harmful way. The losers include more environmentally responsible producers using recycled paper content. Such mills, which are critical to developing a green jobs economy, are being put at severe disadvantage. These billions of dollars of payments are encouraging additional emissions of greenhouse gases at some of the most polluting and least efficient mills in America.

The exploitation of this loophole by paper companies clearly violates the intention of the original legislation by increasing use of fossil fuel and costing taxpayers billions of dollars. It is critical that Congress take swift action to close this loophole.

Please direct your reply and any inquiries regarding this letter to Environmental Paper Network, info@environmentalpaper.org, 828/251-8558

Sincerely,

Conrad MacKerron, Director, Corporate Social Responsibility Program, As You Sow Foundation

Rev. Charles Lord, Coordinator, Caney Fork Headwaters Association

Hope Taylor, Executive Director, Clean Water for North Carolina

John Wilner, Director, CounterCorp

Susan Kinsella, Executive Director, Conservatree

Rev. Walter Stark, Coordinator, Cumberland Countians (TN) for Peace & Justice

Scot Quaranda, Program Director, Dogwood Alliance

Victoria Mills, Managing Director, Corporate Partnerships, Environmental Defense Fund

Scott Greacen, Executive Director, Environmental Protection Information Center

Rolf Skar, Senior Forest Campaigner, Greenpeace-US

Frank Locantore, Director, Green America Better Paper Project

Tyson Miller, Director, Green Press Initiative

Jim Scheff, Director, Kentucky Heartwood

Kimberly Baker, Forest and Wildlife Protection Coordinator, Klamath Forest Alliance

Ernie Reed, Chair, Board of Directors, Heartwood

Ginger Cassady, Senior Campaigner, ForestEthics

Mike Peterson, Executive Director, Lands Council

Eric Palola, Senior Director, Forests for Wildlife Program, National Wildlife Federation

Nick Bennett, Staff Scientist, Natural Resources Council of Maine

Donald B. Clark, Coordinator, Network for Environmental & Economic Responsibility

Ginger Souders-Mason, Director, Pesticide Free Zone

Gwen Marshall, Coordinator, Protect Biodiversity in Public Forests

Tyson Slocum, Director, Energy Program, Public Citizen’s Energy Program

Mike Brune, Executive Director, Rainforest Action Network

Whitney Merchant, Founder and Director. Sustainable San Anselmo

Mathew Koehler, Executive Director, WildWest Institute

————————————

Footnotes:

1. http://www.thenation.com/doc/20090420/hayes
2. http://www.washingtonpost.com/wp-dyn/content/article/2009/03/27/AR2009032703116.html

CC: Stephen Chu, Secretary of Energy

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