Senate Seeks to Close the "Black Liquor" Loophole

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Like the House Democrats, the Senate Democrats plan to offset the cost of the "tax extenders," which is included in the long-term extension of UI and COBRA that they plan to vote on next week. The "tax extenders" are a group of supposedly temporary tax cuts that mostly go to business interests and that Congress extends each year, sometimes retroactively. The extenders themselves are questionable policy, but the fact that Congress wants to pay for them by closing loopholes is a positive development.

The Senate version of the extenders bill would close the "black liquor" loophole, which allows paper companies to take an alternative fuel tax credit for a long-used process that is not environmentally friendly.

The 2005 highway law includes a tax credit for fuel that is a mix of alternative fuel (cellulosic fuel, meaning fuel made from the non-edible parts of plants) and traditional fossil fuel. In 2007, this credit was extended to include fuel used for purposes like manufacturing.

The problem is that certain paper companies already have a process that involves a cellulosic fuel (“black liquor,” a by-product from the pulp-making process), albeit one that is carbon-rich and not something Congress would want to encourage for environmental reasons. These paper companies realized that they could qualify for this new credit if they added fossil fuel to the cellulosic fuel they were already using.

In other words, companies are actually getting paid to add diesel to a relatively dirty fuel that they were already using. This is obviously not what Congress intended when it enacted this tax credit. The Senate is right to close this loophole.

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