March 11, 2010

Senators defend paper-mill windfall facreditthisy

JOHN RICHARDSON

— By

Staff Writer

An alternative-fuels tax credit that is providing unexpected windfalls for paper mills in Maine and elsewhere should be continued to help preserve the industry, U.S. Sen. Olympia Snowe said Thursday.

Snowe, R-Maine, was one of several senators from paper-producing states to defend the controversial tax incentive, which has effectively made billions of dollars available to mills that fuel their operations with a wood-pulp byproduct known as black liquor.

The tax credit expires at the end of this year, and some in Congress want to end it even sooner because of the unintended payouts. Critics say paper mills would use the black liquor anyway, and some mills are now mixing diesel fuel into it to qualify for the mixed-fuel credit.

Members of the Senate Finance Committee, including Snowe, debated the credit Thursday.

Commitee Chairman Max Baucus called the tax breaks for paper companies a loophole that needs to be plugged. ''We are working to undo that unintended consequence,'' he said.

But Snowe called the credit a critical lifeline to struggling mills across the country.

''The black liquor tax credit is crucial to the survival of the paper industry, and to maintain and create jobs,'' she said.

Congress expanded the tax credit for developing alternative fuels in 2007, offering firms 50 cents a gallon to blend renewable fuels such as ethanol with diesel and other traditional fossil fuels. Some pulp and paper companies discovered late last year that they could qualify because of the black liquor they have used for years to fuel their plants.

Congress expected the tax credit to cost the federal government $61 million this year, but the price tag is now estimated to be $3.3 billion because of the paper industry requests.

Black liquor is a thick, dark liquid created during a chemical pulp-making process. As many as six Maine mills produce black liquor and burn it to generate heat and electricity for the papermaking process.

Verso Paper Corp. received a $29.7 million credit for its Jay mill in the fourth quarter of last year. It's unclear how much the credit could be worth to the mill this year, and a spokesman could not be reached Thursday.

The president of Lincoln Paper and Tissue in Lincoln said the tax credit could mean $10 million for his company this year.

A spokesman for The NewPage Corp.'s mill in Rumford, Tony Lyons, said the mill is not currently taking advantage of the credit. And Tom Howard, an official with Domtar Industries Inc., said its Baileyville mill has officially qualified for the credit but not yet received payment.

The Sappi Fine Paper mill in Skowhegan and the Old Town Fuel and Fiber plant in Old Town also may qualify for the credits, but representatives could not be reached Thursday.

When mixed with at least 0.1 percent diesel fuel, the black liquor meets the federal standards for the alternative fuels tax credit. Some plants already were adding a fossil fuel to the black liquor and could simply switch to diesel, while others are adding it now to qualify for the credit, said Scott Milburn, spokesman for the American Forest & Paper Association.

''It is a requirement of the law,'' Milburn said. The amount of added diesel is small, he said, and at least some plants report no net increase in diesel use because of decreases elsewhere.

Milburn said the overall benefits of using the black liquor far outweigh any additional fossil fuel use. And, he said, tax incentives should not be reserved only for those who are making a switch now to alternative fuels.

''What do you do with the people who are already doing what you want them to do?'' he said.

Snowe and others senators also argued Thursday that the industry should be rewarded, not penalized, for switching to alternative fuels years ago.

Sen. Susan Collins, R-Maine, said in a written statement that she opposes ''premature or rapid changes'' in the tax credit.

''The pulp and paper industry has a long history of producing its own energy from biomass sources, which avoids the use of foreign oil for its energy needs,'' she said.

At Lincoln Paper & Tissue, the credit is helping the company through a difficult economic period.

''This came about at an auspicious time,'' said President Keith Van Scotter, who learned of the credit last fall.

''Under the technical aspects of the code, we have to mix in a very small amount of diesel into our black liquor to qualify.''

After learning about the credit, the company has reduced oil consumption in other parts of the mill by switching to alternative fuels such as recycled vegetable oil, he said. ''We're using (the tax credit) more than just on black liquor,'' he said.

Steve Hinchman, a staff attorney for the Conservation Law Foundation, an advocacy group with offices in Brunswick, agreed that black liquor is clean, inexpensive and renewable. But there is no need for tax credits to encourage its use, he said.

''The paper mills have a built-in incentive to use the black liquor,'' he said. ''They're going to do it no matter what; they don't need a federal subsidy.''

Hinchman said there are other ways paper mills could be made more energy efficient, and tax incentives should target those.

''We should focus in on things that will make a real difference,'' he said.

The Associated Press contributed to this story.

Staff Writer John Richardson can be contacted vat 791-6324 or at:

jrichardson@pressherald.com

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