ALTERNATIVE FUELS:

Baucus, Grassley release proposal to repeal 'black liquor' credit

The heads of the Senate Finance Committee released a draft proposal yesterday to strip the paper industry's ability to claim a lucrative energy tax credit.

Chairman Max Baucus (D-Mont.) and ranking member Charles Grassley (R-Iowa) jointly released a legislative staff draft proposal to clarify the types of fuels that qualify for the alternative fuels tax credit -- eliminating from eligibility fuels derived from the processing of paper or pulp. The proposal would affect only fuels sold or used after the bill is signed into law and would not strip the benefit retroactively.

At stake is potentially billions of dollars for pulp and paper companies that claim a 50-cent-per-gallon alternative fuels tax credit when they blend small amounts of diesel with "black liquor," a byproduct of converting wood into pulp that has long been used to power mills. Baucus and Grassley, who helped write the alternative fuels credit, say they never meant for it to be used that way.

The proposal modifies the definition of alternative fuel to exclude any fuel derived from the production of paper or pulp. The duo asked for public comments to be sent in by July 10. They want public input on issues related to the legislation's effective date, the definition of "black liquor" and the means of closing the loophole.

"I know the paper industry is struggling, but taxpayers don't want to see another billion-dollar bailout," Baucus said in a statement. "This credit was not meant to provide a boon to companies for a process they've already been doing for several decades."

The White House budget proposal also calls for ending the forest and paper industry's access to the tax credit, which is scheduled to lapse at year's end. The budget plan estimates that repealing the industry's access to the credit would raise $533 million in fiscal 2009 and another $702 million in fiscal 2010 (E&ENews PM, May 11).

But some lawmakers with forestry interests in their states, such as Sen. Olympia Snowe (R-Maine), are defending the credit. Snowe has cast it as a lifeline to a struggling industry (E&ENews PM, April 23). Industry trade groups also say that ending access to the credit during the recession would put tens of thousands of jobs at risk.

Environmental groups have bashed the industry's use of the credit, saying that addition of diesel to the black liquor to claim the credit is "perversely" increasing use of fossil fuels, when alternative fuels incentives are meant to have the reverse effect. The forest products industry disputes the claim, saying the small amount of diesel replaces other fossil fuels that would have been used.

Click here to read a description of the proposal.

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