They call it "black liquor," but the dark, chemical brew is not a beverage. It's the sludge left over from the cooking process used to turn wood pulp into paper. Paper companies burn it to generate steam and make electricity. And a little over a year ago, they found that just by adding one-tenth of 1 percent of diesel fuel to the black liquor mix, they could qualify for the "alternative fuel mixture credit."
"In the short term, this has provided to us some extra cash flow and income to help us through a very, very difficult period," says Keith Van Scotter, president and CEO of Lincoln Paper and Tissue. Scotter's company is the biggest employer in the tiny town of Lincoln, Maine.
Here, 400 workers produce tractor-sized rolls of specialty tissue used for making fancy party napkins and paper towels for restaurants. Van Scotter says the alternative fuel credit has meant savings of $10 million for his company over the past year, a year that has been a struggle for the nation's paper industry.
"Think about it: People aren't traveling, so hotels aren't using as many napkins. Restaurants aren't using as many napkins. We've seen demand down in tissue a couple, 3, 4 percent. It's significant, but it's not huge," Van Scotter says.
What is huge, he says, is the falloff in overall demand for paper — between 20 and 30 percent since last year. In Maine, more than 1,000 papermakers have been laid off since 2008. And around the country, the picture is equally bleak. That's why the United Steelworkers union, which represents 120,000 paper workers, is pressing Congress to preserve the credit.
Not everyone is on board.
Sen. Jeff Bingaman (D-NM), a member of the Senate Finance Committee, says he thinks "it's a loophole in the sense that it was never intended to be applied in the circumstance that they've found to apply it."
The alternative fuel mixture credit was originally intended to encourage the development and use of alternative fuels as a way to decrease global warming pollution. But by adding fossil fuel to their black liquor mix, Bingaman says, paper companies are rewarded 50 cents a gallon for doing the opposite.
"This was never anticipated, and I think we need to correct that. I think obviously there's an environmental issue as well, but the main one is the lost revenue," Bingaman says — more than $6 billion by the end of the year according to some estimates.
The alternative fuels credit was only supposed to cost the government a fraction of that amount. But Sen. Olympia Snowe (R-ME) says it's a bargain, if you consider the purpose and the size of the federal stimulus package recenty passed by Congress.
"The stimulus package cost $787 billion, the purpose of which was to save or create 3.5 million jobs. This is a tax credit that will perhaps cost $6 billion for an industry that employs 1.3 million people across America. I can't think of a more important purpose," Snowe says.
The credit is due to sunset at the end of the year. Snowe and other representatives from papermaking states want it to continue. But last month, ambassadors from Brazil, Chile, Canada and the head of the European commission delegation wrote a letter to Congress, complaining that the tax credit is the equivalent of a subsidy. They say it's disrupting international paper markets and decreasing prices. And they warn that failure to do away with it quickly could spark a trade war.
Susan Sharon reports for Maine Public Radio.