Friday, May 01, 2009

A Backwards Bailout for International Paper

Remember when we had all that public debate, national heartburn and those hearings and then finally a careful decision to provide billions of dollars of taxpayer bailout in 2009 to United States paper companies and provide investment dollars to retool them to compete in the 21st century, international economy, and to reduce greenhouse gas emissions and help save civilization from climate change?

Oh wait, that was the auto industry. We never did that for the paper industry at all.

Hold up. They aren't getting a bailout too are they?

Um, actually....yup, a big one.

Most people, including most of Congress, have no idea that when IP released its quarterly earnings yesterday, fully $330 million (USD) of their reported after tax income was a new, direct cash payment compliments of US taxpayers. Smurfit-Stone, who just paid $47 million in bonuses to its executives, and angered its sacrificing workers, is also going to be getting some of the same type of corporate welfare checks this year as well. A couple handfuls of the other large paper companies will too, amounting to at a minimum $3 billion if it is allowed to continue to the end of the year. Anyone got any extra $3 billion laying around to fund this?

How did they do it? Quite craftily, some consultants found an alternative fuels tax credit in a transportation bill which they could technically, but quite genuinely qualify for, and thereby claim 50 cents (USD) a gallon in tax rebates for every gallon of a certain type of fuel they burn and have for many years burned to save money, a waste product of chemical pulping called black liquor. They burn a lot of it. Now Pandora's box has been opened by International Paper and Verso (Bloomberg says Verso could also get $240 million this year in what they term a "boondoggle") as they were the first to claim the check from taxpayers. Now every company that burns black liquor is adding diesel, filing with the IRS as an "alternative fuel mixer" and putting their hand out also for a check.

Well, who's not getting free money for making paper? Unfortunately, its recycled paper mills, and groundwood (such as newsprint) mills, who can't wiggle through the tax loophole being exploited for this bailout. The products produced at recycled mill makes are like the plug-in and hybrid cars of the paper world.

Well, surely that is going towards needed capital investments in modernization and energy efficient technology which will ensure we have progess on the dual challenges of climate change and job creation, right? Nope, actually it wasn't even intended for them according to legislators. It was a modest program to increase biofuel use in automotive vehicles originally, but there was a loophole big enough for a paper mill to fit through it, but only ones that were the right "shape," or type actually. And unfortunately, the "shape" of those mills is the relative equivalent to that of a Hummer in the auto world.

In his press conference on the 100th day in office, President Obama said, in response to a question about the taxpayer assistance to the auto industry,

"We have a circumstance in which a bad recession compounded some great weaknesses already in the auto industry, and it was my obligation, and continues to be my obligation, to make sure that any taxpayer dollars that are in place to support the auto industry are aimed not at short-term fixes that continue these companies as wards of the state, but rather institutes the kind of restructuring that allows them to be strongly competitive in the future."
He could and should have been talking about the paper industry with this statement. The current bailout via this tax loophole simply makes paper companies dependent on the goverment checks while providing no "retooling" or investment to compete. It is without vision, and fails to invest in solutions. It simple raises short term earnings and stock prices and though it may retain some jobs temporarily, what happens at the end of the year, when nothing has changed at the companies. International competition will still be fierce, consumer demand will continue to grow for recycled and other low carbon papers, our U.S. paper manufacturing infrastructure will further deteriorate and shed jobs, and where will our U.S. paper industry be then? Will these companies be able to look their workers and U.S. taxpayers in the eye and say they did their part in acheiving the fundamental changes necessary? Or will they come back and ask to continue being "wards of the state" and seek to receive more taxpayer welfare?

Mr. President, right now, our taxpayer dollars are being taken no strings attached by some paper companies which are unequivocally not meeting this bar, and are in fact backsliding on their fossil fuel usage. The outrage over this issue is growing. It is time for your Administration and Congress to act swiftly to safeguard taxpayer money and close this loophole now. It must cease the unintended consequences of this loophole, including the negative impact this will have on the businesses and their thousands of workers making recycled paper and packaging.

1 comment:

D. Eadward Tree said...

Update: By the end of June, IP had received more than $1 billion in black liquor credits. The total amount passed out to all pulp and paper companies topped $3 billion. Dead Tree Edition has the details: