International Paper Puts $2 Billion on Its Black Liquor Tab

Studying the fine print of tax legislation helped International Paper earn more than $2 billion last year in black liquor credits from the federal government.

The giant paper and packaging company announced today that it is getting $516 million in “alternative fuel mixture” credits for the 4th Quarter of 2009 and yet lost $101 million during the quarter. For the full year, IP got $2.06 billion from the government for mixing a bit of diesel fuel into its black liquor, a pulp byproduct, and using the mixture to power its pulp mills. Without the credits, it would have had a net loss of $1.4 billion last year.

IP kicked off the black-liquor craze in the U.S. pulp and paper industry a year ago when it revealed that it was exploiting a loophole in a federal highway bill. The law, which expired on Dec. 31, was intended to subsidize the use of bio-fuels in motor vehicles, but IP realized the subsidies could also apply to the decades-old practice of using energy-rich black liquor as a fuel source for kraft pulp mills.

Within a few months, all publicly traded companies with U.S. kraft mills were earning the credits. Most have not reported Fourth Quarter numbers yet, but they are on pace to receive more than $6 billion for 2009. With about one-fourth of the country’s kraft capacity owned by privately held companies, the total black-liquor tab for 2009 is likely to surpass $8 billion.

As we’ve noted before, we suspect Democrats in Congress left the black-liquor loophole open as part of a deal to help healthcare legislation. If so, they spent billions of taxpayer money and didn’t even get “two aspirins and a Band-Aid.”