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Bootlegging Black Liquor

By Beacon Staff

Ever heard of black liquor? No, not Jaegermeister.

Black liquor is a byproduct of the paper making process. In a nutshell, trees are made mostly of cellulose and lignin. To separate cellulose (for paper) from lignin, paper mills cook the wood in a caustic-soda potion. The liquid left over is called “black liquor.”

Lignin, a very complex biological polymer, is the “fiber” in veggies, giving plants their structure, making wood stiff, strong and inedible. Lignin also contains most of wood’s carbon, and therefore energy.

Paper mills recycle the soda, then burn the black liquor to power the pulping process – as they have since the 1930s. Black liquor provides about 66 percent of papermaking’s substantial energy needs.

Because black liquor is made from trees that suck carbon dioxide from the air, burning black liquor is carbon neutral and renewable. Environmental Protection Agency renewable energy data show that “wood” fuels, mostly liquor, produced about 2.1 quadrillion BTU. That’s near 80 percent of hydropower’s total output, twice wind, solar and geothermal outputs combined. Fossil fuels combine for 83.4 quads, 40 times wood, and 12 times what all renewables currently provide.

Now … here’s where it gets stupid. My logger buddies were discussing a black liquor tax credit Congress is trying to eliminate, and I checked it out.

In 2005, Congress passed SAFTEA, a.k.a. the Highway Bill. Buried about 800 pages down is section 5204 (just ahead of Section 5241 about Custom Gunsmiths) regarding a “Volumetric Excise Tax Credit For Alternative Fuels,” calculated as “the product of 50 cents and the number of gallons of alternative fuel used by the taxpayer in producing any alternative fuel mixture for sale or use in a trade or business of the taxpayer.”

You’ll notice it doesn’t say what kind of mixture, or what business, right?

Not until 2007, when the so-called “Energy Bill” extended the credit to September 2014, did anyone pay attention. Some sharp paper-company officials decided to ask the Internal Revenue Service, “Does this language mean what we think it does?” IRS: “Yep.”

So, since pulp mills burn billions of gallons of black liquor, trust me, 50 cents a gallon is billions of dollars. With the current recession, these billions (and counting) are the only profit in the paper business.

It’s whackin’ good profit … Verso Paper, controlled by private equity powerhouse Apollo Management, has a market capitalization of $36 million, yet scored $29.7 million of federal tax credits (cash) in one quarter for burning black liquor – meaning a year of credits pays for the mill three times over!

International Paper got a $2 billion credit in 2009. Canadian paper company Domtar re-opened a mill in Maine because of the credit, and has claimed $299 million the first 9 months of 2009 – every dime of it as a bonus for something paper mills have done on their own for 80 years.

But there’s more. Drew Miller of Pulp and Paper Week reported in October that another “cellulosic fuels” credit may apply, from 2008 Farm Bill language for “Biomass Crop Assistance” in the 2008 Farm Bill. Try another $4 billion in credits in 2010 alone. The bottom line? According to Chris Clayton of the DTN Ethanol Center, $24 billion by the time the various credits run out in 2014. Some loophole, eh?

Recycled paper producers, that neither create nor use black liquor, are getting creamed and want the credit gone. But virgin-paper-country Sen. Olympia Snowe of Maine, wants it kept in. How did the geniuses in the House react? They stuffed a provision in the health care reform bill that voids the credits – and then claimed they’d found $24 billion in “savings” to “pay” for health care!

Just magical, that.

While I understand these egregious credits might be the only reason the critical Stone Container pulp mill remains open in Montana, I’m horrified how our intellectually bankrupt Congress accidentally presented paper producers a choice between fiscal bankruptcy and moral bankruptcy.

They chose the latter, while we the people get the bill for all three.