A federal program intended to promote the use of renewable fuels is instead encouraging U.S. paper companies to pursue some rather "un-green" practices, such as substituting virgin pulp for recycled pulp.
If the "black liquor" tax loophole persists, it could turn the market for publication papers topsy-turvy and lead to public backlash against paper companies -- and perhaps their customers.
At least two U.S. containerboard mills recently switched from recycled corrugated to wood chips as their fiber source because of the loophole, and others are probably doing the same, Pulp & Paper Week reports in its April 10 edition. (As I wrote in "Hey, Big Boy, Can I Recycle Your Cardboard?" four months ago, the market for recycled corrugated was already so weak that perhaps it's a good thing that the "Corrugated Recycles" phone number was taken over by a phone-sex outfit.)
Most, perhaps all, U.S. kraft-pulp mills are receiving or have applied for alternative-fuel credits for using a mixture of black liquor and a bit of diesel to power the mills, according to Kevin Mason of Equity Research Associates. The credit is worth roughly $200 per ton of pulp, he estimates, which means the federal government could theoretically end up paying out $10 billion for these credits. The current market price for kraft pulp is about $600 per ton.
The credits come from 2005 transportation legislation intended to encourage the use of non-fossil fuels, but the effect for paper companies is just the opposite: For decades, kraft-pulp mills have been using black liquor, a pulp byproduct, for power, but they can only receive the fuel credits if they mix some fossil fuel into the black liquor.
The credits also give paper companies a perverse incentive to use kraft pulp instead of mechanical (groundwood) pulp. Mechanical pulp is usually considered environmentally preferable to kraft because it uses fewer trees and causes less pollution.
Kraft pulp is generally more expensive to make than mechanical pulp, which is one reason that freesheet papers command a price premium over papers containing mechanical pulp. But the fuel credits might actually make kraft pulp cheaper for many mills.
So why should such mills make 50# #4 coated groundwood when it would be more profitable to sell 50# #3 freesheet at #4 prices? And why should a company sell a groundwood-substitute at a discount to uncoated freesheet when it would be cheaper just to make the uncoated freesheet?
I don't blame U.S. paper companies, many of which have undergone massive downsizing, for taking advantage of a perfectly legal loophole that could bolster their anemic bottom lines.
But others will. And in an era when the general public mistakenly views digital content as being greener than paper-based content, that could end up being a huge public-relations nightmare for those of us who toil in the dead-tree world.
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Issued by: Dead Tree Blogspot
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Issue date: April 12, 2009
Link to Article: Pulp Fiction: Eco-Credits for Black Liquor
Black Liquor Credits Top $3 Billion So Far, August 14, 2009:
Pulp and paper mills in the United States earned more than $3 billion in controversial "black liquor" credits during the first half of this year, a
Dead Tree Edition analysis shows.
The companies are on pace to earn even more in "alternative fuels tax credits" during the second half of the year if the federal program is not terminated prematurely. The program expires at the end of the year, but the Obama Administration and some members of Congress want to end it early. A few Congress members have advocated some sort of extension.
Twenty-one companies that operate kraft-pulp mills reported to the U.S. Securities and Exchange Commission that they earned or received$2.86 billion from the federal "alternative fuels tax credit" in the first and second quarters.
That doesn't include at least 11 other privately held pulp makers that do not file reports with the SEC. One of those private companies, Georgia-Pacific, manufactures enough pulp to earn well over $200 million per quarter in black liquor credits, according to Equity Research Associates.
The alternative-energy program was originally intended to subsidize the use of bio-fuels to replace petroleum fuels. But International Paper set off a feeding frenzy among pulp makers early this year when it revealed that, by mixing some diesel fuel with the black liquor used to power its kraft mills, it had qualified for the program. Black liquor is a byproduct of the kraft process that pulp mills around the world have been using as an energy source for decades.
For more background on the tax credits, please see "Black Liquor" Credits Are Helping Paper Buyers and Boozing It Up on Black Liquor: One Company's High Is Another's Hangover.
IP, the largest kraft producer in the U.S., has already earned just over $1 billion from the program, it reported to the SEC.
Most other publicly traded pulp makers were late to the liquor party. Many started blending diesel with black liquor in mid- to late January, but Weyerhaeuser and SAPPI apparently didn't start until the 2nd Quarter. Now that all of the eligible public companies have qualified for the program, they seem to be on pace to earn at least $1.6 billion in both the 3rd and 4th quarters.
Accounting for the credits varies among the public companies. Some recognized only the payments they had received from the Internal Revenue Service, while most seem also to have booked credits that were earned but not yet in hand. Some reported the amount of credits they had earned, while others first backed out related expenses.
Here are the credits earned from January to June, as best as I can interpret from the SEC reports:
- International Paper: $1.022 billion
- Smurfit-Stone Container: $294 million
- Domtar; $183 million
- MeadWestvaco: $180 million
- Verso Paper: $144 million
- NewPage: $120 million
- AbitibiBowater: $118 million
- Weyerhaeuser: $107 million
- Rayonier $92 million
- Packaging Corporation of America: $81 million
- Boise: $79 million
- Temple-Inland: $79 million
- Clearwater Paper: $76 million
- Kapstone Paper & Packaging: $70 million
- Graphic Packaging; $62 million
- P.H. Glatfelter: $43 million
- SAPPI: $37 million
- Rock-Tenn: $34 million
- Buckeye Technologies: $25 million
- Appleton Papers: $8 million
- Wausau $6 million
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Issued by: Dead Tree Edition
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Issue date: August 14, 2009
Link to Article: Origin of text
Canadian forest, paper and packaging companies lost a total of $660 million in the second quarter of 2009 while their American counterparts, buoyed by $1 billion in fuel tax credits, posted an $839-million profit, according to a PricewaterhouseCoopers report. Reports Gordon Hamilton, Cmawest News Service
PWC’s quarterly earning review of the forest sector shows the global downturn, weak commodity prices, and low demand hit Canadian companies hard.
“Industry curtailments created sporadic demand for some products, but not enough to sustain recovery,” the report states.
By contrast, a U.S. subsidy to companies for using black liquor, a byproduct of the pulping process, as an alternative fuel injected $1 billion into the American forest sector over the second quarter. They reported lower net sales than during the same quarter of 2008.
“The subsidy really tilts the playing field to the advantage of the U.S. producers,” said Craig Campbell, the leader of PwC’s forest, paper and packaging practice. “If you’re competing against another mill that has 25 per cent cost advantage then you’re not going to have a good chance of survival.”
As a result, said Avrim Lazar, the chief executive of the Forest Products Association of Canada, “all of my members are under financial pressure. “There’s going to be more pain,” he added. “This puts Canadian companies and workers at risk.”
Campbell said he believes the industry, which has reported uninterrupted losses approaching $5 billion over the past three years, has hit bottom and will begin to recover once housing and employment begin to pick up in the U.S.
The Canadian losses show an improvement for western companies from the same quarter of 2008. Western Canadian companies, where the focus is mostly on lumber, lost $83 million, down from losses of $128 million in 2008.
Eastern companies — mostly pulp, paper and packaging producers — lost $577 million, versus $344 million for the same period of 2008. PricewaterhouseCoopers surveyed 15 major Canadian companies for the report.
The $660-million total loss on top of losses of $480 million in the first quarter of 2009, add up to a $1.4-billion loss for the first half of the year.
However, the second-quarter losses also include over $500 million in asset impairment and restructuring charges.
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Issued by: International Forestindustries
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Issue date: September 7, 2009
Link to Article: Origin of text
