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Will Black Liquor Loophole Be Closed?

On June 11 Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) released a legislative staff draft proposal to clarify the types of fuels that qualify for the alternative fuels tax credit and eliminate from eligibility fuel derived from the processing of paper or pulp.

The proposal comes in response to reports that paper and paperboard mills, contrary to Congressional intent, have been adding diesel fuel to “black liquor,” a byproduct of the paper making process, in order to qualify for the tax credit for biomass. It would close the loophole for black liquor fuel produced after the date of enactment. The senators are seeking public comments and ask that all of them be sent to altfuelscredit@finance-dem.senate.gov by July 10.

“Our measure ensures this tax credit is used consistently as the law intended, not through an unintended loophole,” says Baucus. “Like so many American businesses, I know the paper industry is struggling, but taxpayers don’t want to see another billion-dollar bailout. This credit was not meant to provide a boon to companies for a process they’ve already been doing for several decades.”

“This legislative process seems more to win political points rather than to rush an immediate (or even retroactive) ‘prohibition’ of black liquor-related credits,” writes Chip Dillon, paper industry analyst for Credit Suisse, New York City, in a recent report. “Our best guess is that the black liquor credit will remain in place either until the end of September, when it could die as part of the Obama budget plan for the government’s fiscal 2011 (that begins on October 1) or until the end of this year, when the provision is set to expire. We see virtually no chance that it will be extended beyond the year-end sunset.”