Black Liquor Credits Still Flowing

Black liquor has been a hot topic and meant big bucks to the paper industry since 2007. And when we talk about “big bucks,” we mean big—as in billions of dollars. That’s with a “b!”

Let’s take a step back and look at how this whole thing works.

In 2003, a paper from The Center for Paper Business and Industry Studies discussed the value of black liquor as a fuel source. Black liquor is left when pulpwood is digested to free the cellulose fibers so those fibers can be used in papermaking.

The organic content in the fluid—almost half the energy content of the wood—is enough that it can be used as a low-grade fuel. According to Kevin Mason of Equity Research Associates, in bleached Kraft pulp production, an average North American mill produces between 1.6 to 1.8 tons of black liquor solids for every ton of pulp. He goes on to say that the solids typically make up 73 percent of black liquor. The result is two to three tons of black liquor for every ton of pulp.

International Paper’s approximate annual Kraft pulp capacity is 11 million tons and it earned about $2.1 billion from the original black liquor tax credit. At 50¢ per gallon, that equals 4.2 billion gallons—or nearly 400 gallons per ton.

This fuel source is nothing new; pulp mills have used black liquor as an energy source since the 1930s. Paper mills produce, on average, 66 percent of their own electricity needs on-site.

A tax credit in 2005 that rewarded the use of liquid alternative fuel derived from bio-mass in the transportation sector was expanded in 2007 to include “non-mobile” uses and the pulp and paper companies saw their opportunity. By switching from the natural gas they were mixing with the black liquor to adding gasoline, kerosene or diesel, as required by law, the “waste fuel” that had been used for close to 70 years suddenly became qualified for billions of dollars of bio-fuel tax credits.

These tax credits have been criticized as an unfair subsidy by Canadian and Asian companies and yet, even though the bio-fuel credit for black liquor ended on Jan. 1, 2010, it is the gift that keeps on giving.

Writing under the pseudonym “D. Eadward Tree,” the author of the blog Dead Tree Edition has followed the saga of black liquor tax credits since the beginning. In his most recent commentary—“Cost of New Black Liquor Boondoggle Reaches $1.1 Billion”—Mr. Tree gives us an update and the latest tally.

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.

Read the post to find out how International Paper, Packaging Corp. of America, Weyerhauser, Domtar, AbitibiBowater, Appleton, Boise, Graphic Packaging, Glatfelter, NewPage, SAPPI, Smurfit-Stone Container, and Verso all lined their pockets.

Dead Tree Edition also provides other coverage as background:

• U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion
• How Democrats Helped Finance the Tea Party With Black Liquor
• Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits

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.