Black

Liquor Boondoggle Fact Sheet

Black liquor is a thick, dark liquid that is a byproduct of the process that transforms wood into pulp, which is then dried to make paper according to the American Forest & Paper Association. With it as the subject of controversial tax treatment, certain U.S. pulp and paper makers have reaped billions of dollars for burning the substance with diesel fuel and claiming taxpayer funds intended to improve the environment. Legal History In a June 2009 memo, the IRS determined that black liquor qualified for a $0.50 per gallon alternative fuel mixture credit under the 2005 Highway Bill subsection 6426(d)(2)(G) and that it may qualify for a $1.01 per gallon cellulosic biofuel producer credit under subsection 40(b)(6) but not both.1 The Health Care and Education Reconciliation Act of 2010 (ObamaCare) amended the definition of cellulosic biofuel for fuels sold or used after December 31, 2009 and determined that the producer credit ceases to be available for fuels containing significant water, sediment, or ash content, such as black liquor. Thus, no credit for black liquor may be allowed for fuels sold or used after December 31, 2009.2 Estimates of the Black Liquor Boondoggle Estimates of the one-year tax benefit for 2009 range from $6.6 billion3 to $8 billion4 to much greater. A former PhD economist with the U.S. Treasury Department and the congressional Joint Committee on Taxation estimated the overall value of the

1 Internal Revenue Service; Office of Chief Counsel Memorandum Number AM2010- 002, July 9, 2010 2 Internal Revenue Service; Office of Chief Counsel Memorandum Number AM2010- 002, July 9, 2010 3 Ivry, Bob and Christopher Donville. Black Liquor Tax Boondoggle May Net Billions for Papermakers. Bloomberg. April 17, 2009 4 Analysis from Accuval. Black Liquor Tax Credits: The End of a Loophole for the Pulp & Paper Industry. March 31, 2010

credits to be as much as $25 billion.5 And over a ten-year period, rescinding the loophole was estimated to generate as much as $24 billion in revenue6. Real Taxpayer Dollars: Refundable Credits Black liquor tax credits were refundable, which means unprofitable companies actually received billions of dollars out of taxpayer coffers through the U.S. Treasury. Another Bailout out for failing companies. The New York Times explained in 2009, Because the tax credit is refundable, money-losing companies such as Verso and International Paper qualify for direct payments from the Treasury, instead of offsets on taxes owed. International Paper lost $452 million in the fourth quarter of 2008. Unlike money lent by the Treasury to banks or ailing automobile companies, these sums will not be repaid.7 Its not just money that wont be repaid its money that the companies are using for a variety of unrelated business efforts. While International Paper was losing money and taking taxpayer money in 2009, one analysis found that it continued paying dividends. Taxpayer funds accounted for more than 60 percent of the companys earnings before deducting taxes, interest payments and amortization expenses during the period.8 All told, the company reaped more than $2 billion from U.S. taxpayers. One analyst firm estimated that at least 19 other publicly traded pulp and paper companies also took advantage of the black liquor tax credits in 2009.9 Companies colluding with the U.S. Steelworkers to seek protectionist tariffs have fared well with the black liquor bailout. NewPage reportedly received $304 million in the alternative fuel credit in 2009, while Sappi received $152 million in 2009 and was expected to receive an additional $45 million in the first quarter of 2010.10 Verso Paper, owned primarily by private-equity firm Apollo Management, reported 5 Sullivan, Martin A. New $25 Billion Tax Windfall for Paper Companies. Oct. 15, 2009 6 Herszenhorn, David M. Thirsty for revenue, White House reaches for black liquor. New York Times. February 22, 2010 7 Mufson, Steven. Papermakers dig deep in highway bill to hit gold. Washington Post. March 28, 2009 8 Analysis from Accuval. Black Liquor Tax Credits: The End of a Loophole for the Pulp & Paper Industry. March 31, 2010 9 Analysis from Accuval. Black Liquor Tax Credits: The End of a Loophole for the Pulp & Paper Industry. March 31, 2010 10 Bergman, Becky. Tariff Tactics; Maine paper makers see survival in proposed dumping rule. Mainebiz. August 10, 2010.)

that it received as much as $29.7 million for just one mill in Jay, Maine.11 One report said Treasury's payment to Verso was only $7 million less than the company's current market capitalizationand it expected another payment shortly thereafter.12 No Environmental Benefit Environmentalists have called the lucrative tax credit a multibillion-dollar gift,13 and charged that the rule benefits U.S. pulp manufacturers with green rewards for doing nothing out of the ordinary, our government has accepted the mantle of enabler and is promulgating greenwashing on the taxpayers dime.14 A spokesman for the company Verso, which reaped tens of millions of dollars, acknowledged that it began adding diesel to its black liquor mix at one plant because of the tax credit.15 Sparking A Trade War? The New York Times reported: The tax credit could precipitate a trade dispute, with some Canadian paper companies alleging that it puts them at a competitive disadvantage. More than 100 mills appear to be eligible for the credit, including some in the United States that are owned by Canadian companies.16 One paper industry analyst in Montreal told the New York Times of the black liquor issue, This came out of the blue, and some companies have started to claim these payments as hush-hush, magic money In America, probably more than anywhere else, odd things happen to legislation.17

11 Mouawad, Jad. Lawmakers may limit paper mills windfall. New York Times. April 17, 2010 12 Mufson, Steven. Papermakers dig deep in highway bill to hit gold. Washington Post. March 28, 2009 13 IRS brings Son of Black Liquor back from the dead; ruling may be worth billions to U.S. pulp makers. Dead Tree Edition, July 15, 2010 14 Nowack, Peter. Why tax credits for black liquor dont add up. July 19, 2010 15 Mouawad, Jad. Lawmakers may limit paper mills windfall. New York Times. April 17, 2010 16 Mouawad, Jad. Lawmakers may limit paper mills windfall. New York Times. April 17, 2010 17 Mouawad, Jad. Lawmakers may limit paper mills windfall. New York Times. April 17, 2010

Black Liquor Boondoggle Recipients

(Company, black liquor credits reported, 2009 net income)18 International Paper: $2.06 billion in black liquor credits; $2.36 billion net income Smurfit-Stone Container: $654 million; $8 million Domtar: $498 million; $310 million MeadWestvaco: $375 million; $225 million Weyerhaeuser: $344 million; $ - 545 million NewPage: $304 million; $ - 308 million AbitibiBowater: $284 million (estimated); $ - 801 million through 3rd Quarter Verso Paper: $239 million; $106 million Temple-Inland: $218 million; $206 million Boise: $208 million; $154 million Rayonier: $205 million; $313 million Kapstone Paper and Packaging: $178 million; $80 million Packaging Corporation of America: $176 million; $266 million Clearwater Paper: $171 million; $182 million Graphic Packaging: $147 million; $56 million SAPPI: $136 million; $ -251 million Buckeye Technologies: $130 million; $154 million P.H. Glatfelter: $108 million; $123 million Rock-Tenn: $75 million; $279 million Appleton Papers: $18 million; $25 million Wausau: $14 million; $21 million

18 Koehler, Matthew. Black Liquor Scorecard: Pulp & Paper Companies Take $6.5 Billion from US Taxpayers in 2009. NewWest.com. March 17, 2010. See: http://www.newwest.net/main/article/black_liquor_scorecard_pulp_paper_compa nies_take_65_billion_from_us_taxpaye/