Paper Industry Urges Fairness for Alternative Fuel Suppliers

Throughout April, the paper industry saw much criticism for receiving tax refund checks for using an alternative fuel mixture at production plants. Coming soon after the fiasco over federal bail-out funds being used to pay hefty bonuses to executives in the financial industry, these refunds to paper manufacturers stirred up negative commentary from the press and other observers. The American Forest and Paper Association (AF&PA) issued forthright statements defending the tax credits and refunds in response.

The alternative fuels tax credit, initially legislated in 2005, resulted from congressional efforts to encourage the use of other-than fossil fuels. The legislation applied first to transportation, but in 2007 the scope of the program was expanded to include other industries. The paper industry for many years has used “black liquor,” a by-product of its manufacturing processes, for fuel to generate 65 to 70 percent of the electricity it uses in production. Apparently diesel fuel is added to this where necessary, and some have claimed the diesel fuel is added specifically to qualify for the tax credit.

International Paper received $71 million in tax refunds under auspices of the legislation, and Verso $30 million, for operations for only part of last year. They and other mills may qualify for even more before the program expires at the end of this year.

One perhaps unintended consequence of these credits and refunds is that the U.S. paper industry may have put itself in the position of being classed as a “government-subsidized industry.” If complaints from some non-U.S. competitors are deemed justifiable, exports from U.S. mills may be subject to tariffs imposed by the importing nations. After all, it was only a couple years ago that several U.S. producers cried “Unfair!” and demanded protective tariffs when paper mills in several Asian nations were selling product at below-market prices here because of subsidies from their governments. Eventual outcomes from this remain to be seen.

Even in good economic times, the paper industry has seen flat-to-decreasing demand in many of its product lines. And, in a depressed economy with housing construction and the demand for wood products at significant lows, the situation isn’t likely to improve for any forest product manufacturer.

For some mills, burning black liquor is only part of the issue. The light at the end of the economic tunnel for both large and some smaller producers has been R&D in the direction of converting their production capacity from paper and lumber to biomass fuels. Toward this end, the forest and paper industry recently participated in hearings on pending Renewable Energy Standard (RES) legislation, and issued position statements on proposed “cap-and-trade” legislation.

In congressional hearings held April 23, AF&PA President and CEO Donna Harman told the Senate Finance Committee: “Increasing America’s energy security, and encouraging and rewarding the use of clean burning fuels to displace fossil fuels, is a national priority. The forest products industry is a leader in generating renewable energy, producing an average of two-thirds of its power needs on site with the help of carbon-neutral, renewable biomass fuel. We produce more renewable energy than all the solar, wind and geothermal energy combined—28.5 million megawatt hours annually, enough to power 2.7 million homes.