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Olympia Snowe

What the Black Liquor Tax Credit Means for Maine
By Senator Olympia J. Snowe
Apr 25, 2009 - 9:32:10 AM

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Recently, an issue was raised over the legality of the so-called black liquor tax credit. The black liquor tax credit has served as a critical lifeline to thousands of paper mills across the country during these troubled economic times and if it is repealed, Maine's historic paper and pulp mills will reap the dire consequences. To fight and protect this industry, I addressed critics of the credit in a Senate Finance Committee hearing this week and called on them to allow the tax credit to, at minimum, remain in effect through 2009.

Enacted as part of the 2005 highway bill, the 50-cents-per-gallon tax credit aims to increase America's energy independence by encouraging the use of alternative fuels. In 2007, the tax credit was modified to allow pulp and paper companies to become eligible for the credit. American paper mills create this alternative fuel known as black liquor - as a byproduct of the pulp-making process and use it as a substitute for traditional energy sources. By mixing black liquor with diesel, many paper firms have legally utilized the tax incentive, and as a result in many cases mills have been able to continue production and retain jobs. Senate Finance Chairman Max Baucus has called this tax credit a "loophole" and stated that he would move to limit eligibility for paper companies to receive an alternative fuels tax credit.

From my viewpoint, we have a tax credit that exists for those who utilize blended alternative fuels and should remain in effect at least through the end of this year. The IRS has certified applications for many paper companies allowing them to appropriately qualify for this credit by burning so-called "black liquor" to produce energy. And in fact, the percentage of fossil fuel they are using in their blend is de minimis - one tenth of one percent - as compared to a host of other blended fuels for which no one is questioning use of the credit.

We must assess this issue in the context of this recession that's the longest and deepest since World War II. We spent $789 billion on an economic stimulus package because we rightly decided it must be our national public policy to save and create at least 3 million jobs. Given the gravity of our economic circumstances, do we really want to punish an industry that employs 1.3 million Americans...that is a top ten manufacturing employer in 42 states industry that was ahead of the curve with respect to alternative energy when many other industries were behind the industry that's hanging on right now by a thread through no fault of their own?

The paper industry has lost $2.1 billion in the 4th quarter of 2008 alone and 44 paper mills in America, including Domtar and others in Maine, have already announced temporary closings in 2009. Clearly, these are desperate times for the economics of this industry and this incentive is saving jobs. Must we penalize an industry because of an economic environment resulting from the excessive greed and insufficient oversight on Wall Street?

Congress enacted the alternative fuels mixture credit and this industry is legally entitled to utilize it. The black liquor tax credit is crucial to the survival of the paper industry and retaining jobs in the midst of an economic crisis, particularly in rural areas where there's hardly an overabundance of alternative employment. No question that the industry has been utilizing the technology since the 1930s, but we are in a state of the economy that we haven't seen since the 1930s! The fact is, we should be doing everything we can to salvage this critical industry that's such an integral piece of Maine's history and its economic future.

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