By Greg Rudder, Editor, PPI Pulp & Paper Week, RISI
SAN FRANCISCO,
April 24, 2009
(PPI Pulp & Paper Week) -
In a Washington political battle about jobs, American manufacturing, and loopholes, the US Senate Finance Committee met yesterday and heard strongly-worded testimony favoring a controversial alternative fuels black liquor funding provision that began benefiting kraft pulp producers last month.
No action was taken at the hearing, but committee chmn Max Baucus, D-MT, who entered as the strongest proponent of eliminating the funding for pulp and paper companies, backed off somewhat although one contact added that Baucus was still entertaining an effort to try to eliminate the funding for pulp and paper companies at mid-year.
"Unless we plug this loophole, the federal government is liable for billions in credits for black liquor in 2009 alone, even though the credit was never intended for this fuel," Baucus said at the committee meeting.
All said, senators from paper making states spoke out about the need for the funding, with US paper/board output in the first quarter off about 20% on a year-over-year basis, 2008 earnings of publicly-traded companies down 40% vs 2007, and fourth quarter earnings down a whopping 83.5% compared with fourth quarter 2007 profits.
"Given the gravity of our economic circumstances, do we really want to punish an industry that employs 1.3 million Americans," asked Sen. Olympia Snowe, R-ME, at the hearing, and "an industry that's hanging on right now by a thread through no fault of their own?"
"The black liquor tax credit is crucial to the survival of the paper industry, and to maintain and create jobs," Snowe added.
Sen. Debbie Stabenow, D-MI, said she favored extending the so-called alternative fuels tax credit funding, which is set to end at the end of this year, and eliminating the requirement that to qualify, a pulp mill's spent black liquor must be mixed with a bit of diesel fuel, which has rankled some environmental concerns.
The alternative fuels funding, which amounts to up to $200/ton for US kraft pulp producers, continues to outrage Canadian industry officials.
Two companies last month, International Paper and Verso Paper, first reported gaining a combined more than $100 million in Internal Revenue Service (IRS) payments from the alternative fuels provision. To qualify, their kraft softwood and hardwood pulp mills burned spent black liquor in recovery boilers to produce energy.
US kraft softwood and hardwood capacity totals almost 54 million tons this year, and the nonpartisan Joint Committee on Taxation estimated that the payout under the legislation to the pulp and paper industry could reach $3.3 billion this year, the Associated Press reported Wednesday.
"If the (Canadian) federal government doesn't act to level the playing field within the next two months, the damage done to the industry in terms of job losses will be irreversible," the Forest Products Assn of Canada said Monday.
"... pulp companies in the States are turning that law on its ear. Really, what we have here is a law of unintended consequences," said Canfor Pulp Ltd Partnership VP operations Brett Robinson, in a report by Opinion 250 News in Canada.
Kraft pulp mills have been burning black liquor since the 1930s.
Robinson said Canadian companies will be hard hit if the tax credit continues beyond this year.
"Canadians are the high cost producers," said Robinson, and "we will not be able to compete if US companies continue to receive this tax credit. It is impossible for Canfor or any other Canadian pulp producer to work on a level playing field. It's just absolutely insane what's going on here."
Tax credits and Baileyville. In Maine, Snowe believes the tax credit could eventually provide a "second chance" this year to the Domtar pulp mill in Baileyville, which is to indefinitely shut on May 5, a Snowe official said.
"Basically, it's a lifeline right now. It can make the difference between survival or closure," she said of the credit early this week. "If we're going to be a country that's going to return to making things, we certainly want to make sure we preserve this industry during this very difficult time."
Sen. Bob Corker, R-TN, said he set up a meeting for International Paper executives with Finance Committee staff to make their case.
Before the finance committee hearing, contacts claimed one of Baucus' goals was to try and shame paper companies away from applying for the credit or to convince the IRS not to accept more applications. Some believe Baucus eventually will retreat and allow the tax credit funding for pulp and paper companies to run its course until yearend.
United Steelworkers pres Leo Gerard said eliminating the funding this year would lead to additional pulp and paper mill closures. Last year, 3.65 million tons of US paper and board capacity was shut permanently or indefinitely. Almost half the capacity was shuttered in the fourth quarter, when the global economic downturn struck hard.
In a letter to the finance committee last Friday, Gerard said the alternative fuels tax credit money was "badly needed relief to paper makers at one of the most critical junctures in industry history."
"It is not an overstatement to say that this credit, in a number of cases, is the most compelling factor in decisions relating to the continuing operation of a number of pulp and paper mills," Gerard said. "Two of the industry's key players, Smurfit-Stone and AbitibiBowater, are in bankruptcy, while others are cash starved and struggling to restructure debt to stave off bankruptcy.
"To be sure, many companies are depending on this tax credit to survive, and keep mills running and our members working."
- In a $135 million project, Peregrine Energy plans to build a new woody biomass-fueled cogeneration plant at Sonoco's Hartsville, SC, mill complex that will replace coal-fired boilers. The plant is expected to be operating by the fall of 2012. Plans are for Peregrine to construct and own a 50 MW facility, and sell electrical output and all renewable energy certificates to Progress Energy Carolinas, and sell low pressure steam to Sonoco for the mill. The cogen plant would run on pre-commercial thinnings and waste logging residues.
• By Greg Rudder, Editor, PPI Pulp & Paper Week, grudder@risiinfo.com.