Teetering on the edge: Black liquor tax credit update

By Felicia Willis, Associate Editor, Pulp & Paper International magazine

ATLANTA, GA, May 29, 2009 (RISI) - The entire pulp and paper industry is still a buzz about the black liquor tax credit, which is currently teetering on being eliminated. Some pulp and paper companies are continuing to reap the benefits of the black liquor tax credit but President Obama and his administration appear to be prepped and ready to end the billions of dollars of credits and direct payments being paid to the pulp and paper industry.

This tax provision was originally intended to promote alternative fuels for motor vehicles. The alternative fuels provision, which began as part of a 2005 highway bill and later expanded in the 2007 energy bill, said that any company mixing alternative fuels with traditional fossil fuels would qualify for a 50 cent per gallon tax credit. The Joint Committee on Taxation estimated that it would cost taxpayers a total of $61 million.

So now, pulp and paper companies are being richly rewarded for the long-standing practice of using black liquor, a byproduct of the wood pulping process, as a fuel to run mills since the 1930s. These pulp and paper companies, which had not applied for the benefits before the end of last year, have not needed to modify their existing business practices in any way in order to qualify for the tax breaks.

Companies began filing papers with the Internal Revenue Service to qualify, and payments and credits that were disbursed grew quickly. It was highly publicized that International Paper and Verso received a combined total of over $100 million due to the tax credit. It was also reported that Smurfit Stone could receive a payment of roughly $543 million. It was estimated by the Treasury department that if the energy bill is left unaltered, the provision would cost taxpayers about $4 billion a year, instead of $61 million as originally anticipated, for using "black liquor" as fuel.

As it stands now, the administration has rewritten the alternative fuel provision to exclude the paper industry for the fiscal year 2010 budget proposal. If approved by Congress, the provision will take effect October 1, 2009.

It is interesting to note, results from a recent RISI poll indicate that about 41% of readers believe the tax credit should be removed, while 59% think it should stay in place.

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For more reading on the tax credit, click on the links below:

On black liquor, China, and swine - all the buzz at International Pulp Week

Obama administration looking to eliminate alternative fuel tax credit funding for US pulp makers -- possibly by Oct. 1

FINANCIAL ANALYSTS: Black liquor debate continues

Black liquor: Credit where it's due?

Black liquor showdown in Senate

IP gains $716 million from IRS for using alternative fuels

Government AFPA assumes continuing hard lobby for black liquor tax money for pulp makers

Dealing with the downturn upgrading International Paper

Key US senators may look to end the black liquor alternative fuels credit

Is the party ending Black liquor credits threatened

Energy IP gains $716 million for black liquor uses could generate $1billion in 2009

IP gains $716 million from IRS for using alternative fuels at 15 of its kraft pulp mills

Alternative fuel tax credit may be ripe with cash from kraft pulp mill black liquor

Black liquor gold sector stands to benefit from alternative fuel tax credits

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