Black liquor tax credit update: the debate keeps on burning

By Mark Rushton, Editor, Pulp & Paper International Magazine, RISI

LONDON, Nov. 3, 2009 (RISI) - The black liquor tax credit has been a hot topic in North America, but black liquor has also become important among producers, exporting to the US, who have been hit hard by the subsidy. As the tax loophole is closed later this year, price increases outside and inside the US should begin to stick. This should offer some relief to the beleaguered European industry that has been hit by exchange rate issues as well.

To add insult to injury to companies operating outside the US, the results of the tax credits have begun showing up in corporate earnings, making the benefactors of black liquor appear stronger than they actually are. Packaging Corporation of America has had a lift up of its earnings by US$48 million, and Temple-Inland reported an additional income of $US58 million in its Q3 results.

The hard hit European industry will see a lot of capacity shutting in 2010, but any rescinding of the black liquor tax in the US could also create more mill shutdowns. And Europe is not the only worried region, for Canadian producers it has spelled disaster, especially for graphic papers.

Meanwhile the debate rages, perhaps in the form of envy from other industries that aren't as fortunate as US pulp producers . The Institute of Scrap Recycling Industries, Inc. (ISRI), is complaining that the black liquor subsidies are actually discouraging paper recycling and that the tax incentives should be rescinded. The body is questioning whether black liquor should even qualify for the Alternative Fuels Provision. Even some papermakers are rallying against the tax credit -- 100% recyclers of course. Marcal Paper has gone so far as to accuse its fellow industry producers of "reaping a windfall of millions of taxpayer dollars at the expense of the nation's forests."

There are also calls from the American Congress to close the black liquor fuel credits even earlier than planned. Anne Kirkpatrick, a Democratic Congresswoman from Arizona, is concerned that kraft pulp mills could gain additional funding next year from the cellulosic biofuel producer credit created in a 2008 US Farm Bill. This could be an even more dramatic tax credit, and is likely to have Kirkpatrick and other opponents pulling their hair out in frustration. Intended for biomass material suppliers such as timberland owners, a potential $US4 billion could be available to the paper industry under the US Farm Service Agency's (FSA) Biomass Crop Assistance Program (BCAP). Eighteen pulp mills have been approved under BCAP so far, and applications were pouring into the FSA to join the program. Will the black liquor feast continue? RISI economists see "potential for this federal program to turn into another bonanza for the US pulp and paper industry"

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For further reading on the black liquor tax credit and related subjects, click on the links below:

Teetering on the edge: Black liquor tax credit update

Black liquor tax credit A loophole to be plugged

Son of Black Liquor A $50 Billion Loophole for the US Pulp and Paper Industry

US federal funding could further help pulp and paper sector with effort on biomass possibly another one on liquor

Domtar, Canfor top recipients of Canada's $1B green energy funding

Emission capture study planned at Boise paper mill in Washington

Subsidized US Mills Fight Back Against Subsidized Cross Dressing Coated Papers

US coated-papermakers file antidumping complaint seeking import duties on Chinese, Indonesian sheet market imports