The Dead Tree Edition is reporting today about its latest assessment of the cost to taxpayers from an obscure but expensive loophole in United States renewable energy legislation. The latest loophole is a program called Cellulosic Biofuel Producer Credits, which Congress had no intention would be claimed by paper companies. However last year the Internal Revenue Service dubiously overruled the US Environmental Protection Agency (see EPA's letter) to determine that the $1.01/gallon tax credit was applicable to the burning of black liquor. Black liquor is a toxic sludge of chemicals and lignin produced in large volumes in the pulping process and burned in recovery boilers to assist in powering virgin tree fiber pulp mills. The story of the "Black Liquor Loopholes" is a cautionary tale about how NOT to design subsidies for new technologies if the goal is to achieve a net reduction of greenhouse gas emissions and reduce dependence on fossil fuels.
A dozen publicly traded pulp manufacturers recently reported actual or expected federal Cellulosic Biofuel Producer Credits (CBPC) totaling $1.1 billion in their annual and quarterly reports.
That number includes only $65 million, so far, for #1 pulp manufacturer International Paper and nothing from #2 Georgia Pacific, which is privately held. Both giants seem likely to join or surpass Packaging Corp. of America, Weyerhaeuser, and Domtar, each of which recorded or expects to record more than $200 million (pretax) in CBPCs.
CBPC is supposed to subsidize the production of environmentally friendly biofuels, but in the case of pulp manufacturers it’s a pure giveaway of taxpayer money. The credits are being shelled out to the manufacturers for burning black liquor as a power source, a standard industry practice, in 2009, but the manufacturers didn’t even know they would qualify for the credits until 2010.