Black Liquor Credit is Back

By: Neil Ward

In an April 27 news story in the Washington Post, reporter Stephen Mufson states that—in spite of the legislative movement to remove the pulp and paper industry’s eligibility for what were said to be unintended benefits from a federal biofuels subsidy—a federal tax ruling on June 28 of last year “allows black liquor to qualify for a different tax credit meant to encourage new cellulosic biofuels for transportation.” How this revenue structure differs from the one eliminated last year is not clear from the article, but it is clear—implicitly to Mr. Mufson’s indignation—that the effect is similar and that the major U.S. pulp producers have not been slow to file applications to claim it.

From the article: “It’s outrageous that the IRS and Congress have let these companies get a tax windfall for something that serves no public policy purpose,” said Martin A. Sullivan, a private tax economist who previously worked at the Treasury and on the staff of the Joint Committee on Taxation. The IRS, he said, “definitely could have shut it down and, for reasons that are hard to understand, they caved to everything the industry asked for.” Mufson suggests that the credit was preserved due to political pressure from Sen. Olympia Snowe (R-Maine), explaining, “At the time, the Obama administration was seeking Snowe’s vote for the president’s health-care legislation.”

Both for Mr. Sullivan’s and Mr. Mufson’s edification, we may point out that it is not necessary to probe for disingenuous motives or political horse-trading to explain the policy. It should be enough to demonstrate that to the extent any biofuel subsidy directs biomass, or biomass-derived chemicals, away from integrated processes that currently consume them—pulp mills—it creates waste and inefficiencies in supply as those pulp mills attempt to replace them with less efficient alternatives. It is not, after all, so long a stretch to imagine a pulp mill directing its black liquor off-take to a transportation fuel refining unit and replacing the lost energy value with a fossil fuel component—for a net loss in energy efficiency and renewable energy deployment.

Although this effect may not be obvious to Mr. Sullivan’s Joint Committee on Taxation, with its inability to interpret the effects of tax policy through dynamic modeling, it is an easy enough point to make in litigation—even with the IRS.

Submitted by The Forest Resources Association

Neil Ward is the Director of Communication for the Forest Resources Association Inc. (www.forestresources.org). The FRA  represents diverse segments of the wood fiber supply chain, promoting forest products industry members' ability to compete successfully in the global marketplace.