Pulp producers gain in black biofuel credit

Pine chemical company Arizona Chemical is complaining about the possibility of losing their black liquor-based feedstock because of the federal tax credit that are being given to pulp mills who mix black liquor with diesel and burn them as fuel for their operations.

Black liquor, by the way, is a liquid byproduct you get at a paper mill when wood is turned into pulp. Pine chemical companies rely on these byproducts such as black liquor soap/crude tall oil and crude sulphate turpentine as feedstocks to make renewable-based chemicals.

Arizona Chemicals noted that burning black liquor for biofuels could lead to plant closings across the pine chemicals industry and increased imports of replacement products, which are primarily made of non-renewable petroleum sources.

Pulp and paper mills have long used black liquor as an occasional fuel source, according to the paper industry. But with the 2007 biofuel tax credit legislation, Kraft paper mills who were already using the natural black liquor could now add as little as 0.1 percent of diesel to the fuel mixture and they could qualify for a tax credit.

Recent earnings report from major pulp and paper companies such as International Paper (IP), Weyerhaeuser, and Domtar revealed big federal tax credit gains from these operations.

In the third quarter this year, IP reported a $525 million pre-tax credit ($320 million after taxes) for alternative fuel mixture credits in addition to the $482 million pre-tax credit ($294 million after taxes) gained in the second quarter.

IP received its first biofuel tax credit check from the Internal Revenue Service in March this year with an amount of $71.6 million. The company produced (and used) the alternative fuel mixture at 15 of its mills for the period of November 14 to December 14, 2008.

Third quarter earnings also saw biofuel tax credit profits for Weyerhaeuser amounting to $74 million while Canada-based Domtar’s profits impressively jumped in the third quarter mostly thanks to a $159-million federal biofuel tax credit (which came to $116-million after tax).

Domtar was able to earn (before tax) $131m in the second quarter and $46m in the first quarter from the tax credits alone.

I found this intriguing blog called “Dead Tree Edition” talking about this issue and the author of blog estimated that US kraft pulp mills could could generate $50 billion in tax credits before it expires at the end of 2012.

That is one heck of a big tax credit although it makes sense seeing that International Paper alone is on track to earn nearly $2 billion in alternative fuel mixture credits this year. The company paid less than $200 million in U.S. income taxes last year and had less than $400 million in earnings during the first half of this year, according to the blog’s author.

Even paper company Marcal is calling on Congress to eliminate the credit stating potential further deforestation “under the guise of alternative fuel production.” Marcal’s paper products are mostly recycled-based, the company assures.

“Organizations across industries are scrambling for bailouts for survival, yet many paper manufacturers are taking advantage of taxpayers’ dollars and are being rewarded with a bonus for pillaging our forests.” – Marcal

Last July, the United Steelworkers union, however filed a comment urging Congress to not repeal the tax credit stating its necessity for job maintenance as well as creation of jobs in the paper industry.

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