CEPI: U.S. black liquor tax credit distorts international competition, should expire Dec. 31 as planned and not extended through the Biomass Crop Assistance Program

Dec 11, 2009 — CEPI

BRUSSELS, December 11, 2009 (press release) — Pulp and paper associations around the world, including CEPI have requested that the US Administration stops its pulp and paper industry benefiting from the Fuel Tax Credit scheme after December, 31st 2009, as initially scheduled, and that the US pulp and paper industry’s eligibility for the Cellulosic Biofuel Producer Credit and the Biomass Crop Assistance Program is not granted.

Since the beginning of 2009, US pulp and paper companies have been able to benefit from an unintended and disproportionate Fuel Tax Credit scheme, which allows grants of $0.5 per gallon to alternative fuel mixture use – black liquor (a by-product from mechanical pulp production) mixed with regular diesel in the case of pulp and paper industry. As a result, and according to available information, about $4 billion have already been received by companies in the US, and this is estimated to reach between $7 and $8 billion by the end of 2009. This subsidy has been granted to the US pulp and paper industry without any additional environmental benefit being introduced, as burning black liquor has been common practice for decades.

In November, a bill was also introduced in the US House of Representatives to make the Fuel Tax Credit scheme available to pulp and paper mills’ black liquor fuel on a permanent basis.

A number of other renewable energy programs in the US have also been identified as possible sources of subsidies for the US pulp and paper industry. Although financial support for pulp and paper companies for promoting renewable energies is being implemented in a number of countries, including EU Member States, the level of magnitude of similar programs in the US is disrupting the global level playing field and distorting competition around the world.

The Cellulosic Biofuel Producer Credit subsidy could potentially represent between $25 and 50 billion additional tax benefits by 2012 for pulp and paper producers in the US. A provision to have black liquor made ineligible for the credits was inserted as an amendment to the Health Care Bill that was recently adopted by the House of Representatives as a means of financing healthcare reform. But this Bill, including the previously mentioned provision, has not yet passed the Senate.

“Like the Fuel Tax Credit, the Cellulosic Biofuel Producer Credit would dramatically and durably distort world competition on the pulp and paper markets, which have been experiencing an unprecedented downturn over the last months,” commented Teresa Presas, Managing Director of CEPI.

“We are deeply concerned regarding the magnitude, duration and multiplication of different subsidy schemes that are or could be granted to the US pulp and paper mills. The subsidising to a disproportionate level of that sector through such schemes in the US or in any pulp and paper producing country could lead to an escalation of public spending throughout the world with no additional benefit for the environment and serious consequences to global trade,” she concluded.

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