Government: AF&PA assumes continuing hard lobby for black liquor tax money for pulp makers

By Greg Rudder, Editor, PPI Pulp & Paper Week, RISI

SAN FRANCISCO, April 17, 2009 (RISI) - With anticipated Canadian government opposition as well as US Congressional concern, the American Forest & Paper Assn (AF&PA) is lobbying hard against repealing the black liquor alternative fuel tax credit that financially assists US kraft pulp makers. Some analysts maintain that US kraft pulp producers could gain up to $6 billion this year from the funding amid the worst paper and board demand condition in modern times.

"Revoking the forest products industry's eligibility for the alternative fuel mixture tax incentive before it expires later this year, despite the industry's efforts to comply with the rules, could have serious consequences for our companies and our nearly one million employees at a time of unprecedented economic challenges," said AF&PA official Scott Milburn on Wednesday.

Milburn's comments came from an AF&PA handout that went a big step further: "If Congress were to suddenly compound the revenue losses caused by this decline in product demand by revoking the alternative fuel incentive, it could lead to sudden plant closures, job losses, and economic disruption."

The AF&PA said the US forest products industry lost 250,000 workers or 19% of its workforce since 2006.

In 2008, the industry's paper and board capacity continued falling, for the eighth straight year. Since 2000, US paper/board capacity is off 7.3% and eight million tons (P&PW, Mar. 27, p. 1).

After a global economic downturn struck in September, US paper/board demand sunk significantly -- with US paper mills operating at 80% of capacity in January and February, the AF&PA said. Pricing also has begun to fall on various grades, including newsprint, linerboard, and coated and uncoated printing and writing papers (see related stories, pgs. 1, 5, and 9).

In March, International Paper and Verso Paper were first to announce they gained payments from the Internal Revenue Service for the alternative fuels provision by creating energy from burning spent black liquor from their kraft pulping lines with some diesel fuel in their recovery boilers. The two firms combined gained more than $100 million.

More US companies applied for the funding, including some that shifted from recycled-content to virgin production (P&PW, Apr. 10, p. 1). A closer look at which companies gain the funds comes from first quarter earnings statements later this month.

Canadian industry officials this week blasted the funding as a "subsidy" that provides as much as a $200/tonne cost reduction and advantage for US producers, and would spur oversupply of pulp.

"There's going to be some major losers on this all over the world, not only in Canada but also in the US," said Mercer International exec VP David Gandossi in Wednesday's Vancouver Sun. Mercer operates three softwood kraft market pulp mills in British Columbia and Germany.

The AF&PA told members on Apr. 2 to write members of the US Congress Finance Committee, chaired by Sen. Max Baucus, D-MT. No legislation against the provision was pending on Wednesday.

• By Greg Rudder, Editor, PPI Pulp & Paper Week, grudder@risiinfo.com.