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Black liquor lifeline

May 12, 2009 - Jim Anderson
Verso Paper Corp., owner of the Quinnesec pulp and paper mill, reported net income of $54.5 million in the first quarter of 2009.

But if not for a tax credit paid by the federal government, the company would have lost — not gained — about the same sum.

In a recent financial statement, Verso listed $104.6 million in net benefits in the first quarter from “alternative fuel mixture tax credits paid by the U.S. government for our use of black liquor in alternative fuel mixtures during the period of September 2008 through March 2009 ...”

The controversial “black liquor” tax credit was the subject of a Senate Finance Committee hearing last month.

Pulp and paper mills only recently began taking advantage of the credit, which was enacted as part of a 2005 highway bill. Kraft pulp mills have been burning black liquor (a byproduct of the wood pulping process) to save energy for decades. Now, by adding a tiny amount of diesel fuel to the mix, they legally qualify for the 50-cents-per-gallon tax credit.

In Verso’s case, company-wide, the $104.6 million benefit for a six-month period amounts to about $36,000 per employee.

“Papermakers Dig Deep in Highway Bill To Hit Gold” was the headline of a March 28 feature on the credit in the Washington Post.

Sen. Finance Chairman Max Baucus, D-Mont., has called the tax credit a “loophole” and is trying to limit eligibility for paper companies to collect it. Senators from forest industry states are resisting.

During the recent Senate hearings, Sen. Debbie Stabenow, D-Mich., said she favored extending the credit, which is set to expire at the end of this year. She also proposed eliminating the diesel requirement.

Sen. Olympia Snowe, R-Maine, recently wrote an op-ed urging that the credit remain in effect through 2009, at a minimum.

“Clearly, these are desperate times for the economics of this industry and this incentive is saving jobs,” Snowe wrote.

The paper industry was ahead of the curve with respect to alternative energy when many other industries were behind the curve, Snowe pointed out.

“The black liquor tax credit is crucial to the survival of the paper industry and retaining jobs in the midst of an economic crisis, particularly in rural areas where there’s hardly an overabundance of alternative employment,” Snowe said.

Verso, which owns four mills (Quinnesec; Sartell, Minn; and Bucksport and Jay, Maine), saw its net sales drop to $287 million in the first quarter of 2009, compared to $454 million during the same period in 2008.

For all of 2008, Verso’s net loss was nearly $63 million.

It’s far-fetched, given the size of the credit — and protests from Canadian mills about an unfair subsidy — to believe the credit could survive in its current form beyond 2009. The Joint Committee on Taxation estimates the cost to the Treasury at $3.3 billion for a one-year extension, but some estimates have ranged as high as $10 billion.

There are also concerns that the credit may encourage over-production, weakening prices for pulp and paper.

Still, lawmakers have yet to rescind or adjust the credit. In the halls of Washington, discussions are likely ongoing about whether a modified form is plausible for the future.

5-15 addendum: From the May 9 Washington Post: As part of its fiscal year 2010 budget proposal, the Obama administration rewrote the alternative fuel provision to exclude the paper industry. If approved by Congress, that would take effect Oct. 1.

 
 

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