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Black liquor . . . pure gold

|Written By Kelly Harris

Anyone involved in the pulp and paper industry has no doubt heard of black liquor. For those who haven’t, the substance is a by-product of turning wood into pulp. Those in the pulp and paper industry have used the substance as a biofuel to make cheap energy for running mills since the 1930s.

Recently someone in the U.S., I suspect a very bright in-house counsel, discovered a wonderful loophole in one of the few supposedly pro-environment pieces of legislation passed by the former Republican government.

The Safe Accountable Flexible Efficient Transportation Equity Act — a Legacy for Users, created a tax credit to promote hybrid fuels mixing biofuels with traditional fossil fuels.

So the mills sought an opinion from the Internal Revenue Service on the use of black liquor combined with diesel as hybrid fuel under the act. The IRS agreed the mixture qualified and as a result paper producers have been using the tax credit to boost their failing industry. How big is the subsidy you ask? The first cheque was cut to International Paper Co. for $72 million.

In government, as well as in life, there is something called the law of unintended consequences. Basically, a piece of legislation that does exactly the opposite of what it intends. They are all too common, but rarely have I seen a law of unintended benefit. Here we have a piece of legislation trying to promote cleaner business practices being usurped to prop up a failing industry. What is worse, the benefit is so huge mills are actually reopening south of the border just to get in on this tax windfall.

The whole thing highlights a larger issue. As governments rush to draft new environmental legislation they must do so being mindful of existing practices. The objective of green laws must be sustainability and if all the laws do is reinforce old practices then they are pointless. The tax credit for transit riders in Canada for example, has that gone to increase ridership? Or has it simply given a tax break to people for something they already do? I guarantee you the proponents and opponents could provide statistics to sustain either argument.

This is why the environmental movement gets bogged down at the point of regulation. Skepticism about whether the new rules will do anything to help, or simply reinforce old behaviour. Will carbon taxes change people’s minds, or just be a tax grab? Will tax breaks for transit riders create new ridership, or simply reward people who are already transit users?

These are questions governments need to look at before changing the law or writing new ones. Clearly the unintended benefit of the awkwardly named SAFETEA-LU is something everyone, save for perhaps those employed by the U.S. forest industry, should hope to avoid.