Lawmakers work to save tax credit that produced unexpected windfall for paper companies

Paper companies gain support for tax credit

WASHINGTON — Lawmakers from paper-producing states vowed Thursday to save a tax credit that has provided an unintended multibillion-dollar windfall to paper companies.

Struggling paper companies recently discovered they could qualify for federal tax credits intended to promote the development of alternative fuels because they use a byproduct in the paper-making process as fuel to power their mills. The tax credits were never intended for paper companies, but now they could be worth more than $3 billion a year, according to a congressional estimate.

The tax credits are due to expire at the end of the year, and Sen. Max Baucus, chairman of the Senate Finance Committee, said he wants to make sure they are not renewed for paper companies. The Montana Democrat is working on legislation that could end the credits for paper companies — maybe even before the end of the year.

But Thursday, fellow members of the tax-writing Senate Finance Committee — all from paper-producing states — said they will fight to keep the credits through the end of the year and beyond.

Sen. Ron Wyden, D-Ore., said flatly that the credits will not expire without paper companies receiving some other relief.

“I won’t let that happen,” Wyden said in an interview.

Sen. Olympia Snowe, R-Maine, called the credit a “lifeline” for a struggling industry.

“We should be doing everything we can to salvage this industry,” Snowe said.

Congress expanded the tax credit for developing alternative fuels in 2007, offering firms 50 cents a gallon to blend renewable fuels like ethanol with traditional fossil fuels like diesel.

Paper mills produce a liquid substance called “black liquor” as a byproduct of the process that turns wood into pulp. The pulp is dried to make paper and black liquor is then used as fuel to power the mill.

The tax credit, however, is only available to firms that produce a blend of renewable fuels and traditional fossil fuels. Late last year some paper companies realized they could qualify for the credit by adding small amounts of diesel to the black liquor used for powering their mills.

One company, Memphis-based International Paper, has already received $71.6 million in credits for a single month.

Baucus called the tax breaks for paper companies a loophole that needs to be plugged as he opened a committee hearing Thursday on energy tax credits.

“We are working to undo that unintended consequence,” he said.

But Sen. Debbie Stabenow, D-Mich., said she isn’t sure it needs to be undone.

“Here’s an industry that generates a majority of its own power,” Stabenow said in an interview. “We don’t want to penalize them.”