Wood Burns!

Crazy ass Journolister Christopher Hayes of The Nation points out a fascinating tax scam related to alternative fuel tax credits.  Or check out this quick summary on some obscure chat board from Jan 15 2009:

Everyone knows trees are used to make paper.  The wood is chipped and fed into a digestor (think gi- normous pressure cooker). High pressure steam and chemicals are added to cook the wood, reducing it from wood chips to fiber.

The is washed, treated and sent on processing.  Waste liquid from the cooking process is referred to as Black Liquor.  This stuff is a nasty mix of caustic and lignins.  Lignin serves several purposes in living plants, but is not useable in finished paper and is considered waste.

Black liquor is burned in Black liquor recovery boiler, generating steam used in the process and releasing the caustic for recovery and reuse.  Black liquor has been burned as part of the paper making process for several decades. 

Black liquor is now considered a Bio Fuel.  (Here it comes - wait for it).  As a  result, companies burning Black Liquor are eligible for credit if the BL is used in lieu of oil for steam generation. Remember, companies have been burning this stuff for years to get rid of it.

Someone with a talent for reading rules found a loop hole which allows companies to add a small amount of diesel (.1%) and take full credit for substituting biofuel for oil.  As explained to me, companies are avoid using oil through the substitution of "bio fuel", even though they have buring the crap as is.

This small change will provide one moderately sized paper mill in the NW credits worth $140,000 A DAY!!!  An investment of about 20K in pipe, valves and pumps plus the cost .5 gallon per hour of diesel returns $140,000 per day.

I don't know how much time I will have today to devote to a heated discussion of black sludge, but here is a background paper from 2007.  Wood processing does not seem to fit the spirit of their discussion.

The tax credit was part of the 2005 transportation bill, says Mr. Hayes, so Bush and the Republican cronies of Big Business can be targeted here, regardless of the actual impetus for the alternative fuel tax credit (which sounds suspiciously green to me...).  Here is Times coverage of the transportation bill; an energy bill was moving at the same time, but I suppose an alternative fuel provision could fit in either one.

Well.  Given the Democratic fascination with tinkering with the tax code, this story reminds us that Pelosi and Reid ought to move repeal of the law of unintended consequences to the top of their agenda.

[end of thread]

Comments

[fdcol63]

" ... This small change will provide one moderately sized paper mill in the NW credits worth $140,000 A DAY!!! ... "

Dang! Another brilliant idea I missed. No wonder I'm still poor! LOL

[daveinboca]

Yes, probably the [stolen] governorship of Washington State [Gregoire] and its two female Senators had something to do with this little scam, but maybe I'm too harsh. I'm sure Mr. Hayes & The Nation will blame Idaho militiamen for coming up with the idea!

[Rick Ballard]

This seems to to be a very good fit with the overall objective of obanomics - the immiseration of the general populace through the use of perverse incentives based upon manipulation of the tax code. It's a real plus that the "deep" rationale for this particular gem is encompassed within the idiotic framework of CO2 being the "cause" for anthropogenic global warming.

I applaud the intelligence exhibited by the paper industry in recognizing the utter stupidity and incompetence of the government and in taking advantage of the fact in a manner which benefits their shareholders. Their engineers and chemists have been effectively utilizing thermal depolymerization for rather a long time - why not get paid by the government to do something they were doing anyway?

I worry about Clarice. Living that close to the vortex of stupidity located in the District of Columbia is very risky - who knows when a black hole of folly may open and transport the entire city to the Inane Dimension?

[Jane]

Actually under this administration those black holes are looking more and more appealing - as long as you fall into the right one.

[DrJ]

To be accurate, what the report describes is what happens at a *pulp* mill. Paper mills use pulp to make, well, paper and other finished products. They don't do any removal or burning of lignin, because their primary raw material is pulp and their various additives (filler, pigments like TiO2, sizing, &c).

[clarice]

I want to find me a dodge like that.

[Charlie (Colorado)]

This seems to to be a very good fit with the overall objective of obanomics - the immiseration of the general populace through the use of perverse incentives based upon manipulation of the tax code.

I suspect that it's a theorem that all targeted tax scheme result in perverse incentives, as well, of course, as resulting in an effective transfer of wealth from one party to another.

It's all the 16th Amendment's fault.

[Charlie (Colorado)]

Actually under this administration those black holes are looking more and more appealing - as long as you fall into the right one.

Black holes suck.

Seriously.

[glasater]

Actually, there is one such pulp mill about thirty miles from my town located along the Columbia river and in our county. And DrJ is exactly correct in describing it.

Boise Cascade Pulp Mill

[Pofarmer]

This is sorta the problem with all govt programs. If you are proactive with something, you get penalized when the govt finally sanctions it and then subsidizes your competition, while you get nothing because you aren't doing anything new. Bully for the pulp mills for getting around it.

[DrJ]

glasater, I grew up in paper country, and worked in a specialty paper mill one summer as a college student. Interesting trio I worked on: the paper for the complete New International Version of the Bible, cigarette cork tipping, and tampon wrap.

[hit and run]

Have you seen the Sonic commercial? A kid takes his mom to Sonic because they have the "dollar" value menu.

Mom gets all excited eating her burger or whatever, and says, hey look, we can have a dessert!

Kid retorts..."whoa, whoa, whoa. let's not go crazy there mom. Money doesn't grow on trees you know. Actually, the ironic thing is it does grow on trees, since it's made out of paper..."

You know who's printing a lot of money these days, killing trees and creating all this black liquor, enabling Big Paper in their tax schemes?

Obama.

[VIMH: So, you think that when Obama gives billions of dollars in bailout money, he sends government vans to the bureau of engraving and printing, stuff bills into canvas bags and drop them off at the various comanies' headquarters?]
Shut up. I'm on a roll. Speaking truth to power doesn't have to entail speaking truth, you know.

[VIMH: Which is why, I suppose, you are willing to peddle the myth that money is made from trees?]
Exactly.

[glasater]

DrJ~

You were in the "delicate" paper producing plant. The Wallula plant makes cardboard and variations thereof.

Hit~
I thought money was made out of cotton or some kind of fabric stuff.

[DrJ]

Right -- it was specialty papers. Cardboard and corrugated products are rather different. No need to worry about opacity or color, for example.

[matt]

Just another example of smart people doing their jobs. Someone in the paper industry figured it out and now our fearless leaders are all atizzy! Now if we put the same effort into productive pursuits.

[matt]

you can usually smell a pulp mill from 5 miles.

[Boatbuilder]

Hit--tell the VIYH that you're engaged in "accountability journalism." It will confuse the voice long enough for you to move right past those tricky little fact issues and on to your next point, or beer, or whatever.

[Walter]

HnR,

And all this time I thought that money grew on plantations. So much for the Tara theory.

I just spent an inordinate amount of time looking at some of these credits for a client. If it is the tax credit for generating steam with alternative fuels, it comes in under IRC section 38. Section 38 credits are (a) non-refundable (b) applicable only to (speaking very generally here) the excess of regular taxable income over alternative minimum taxable income and (c) great if you are earning taxable income hand over fist but not so useful if you are doing as well as most paper mills.

On the other hand, it sounds like they are using a credit similar to the ethanol $0.50 per gallon credit.

My favorite scam with that was people shipping fuel from Asia to the US, adding 2% US content, and collecting the credit when they export the stuff to Europe. Personally, I would much rather they pay the staffers at the Joint Committee (no, it is not related to Tom's next post) 600-700K so that the money-grubbing smart people are making the rules rather than exploiting them.

But think of all the money we save by paying them only $120K per year!

[Elliott]

*None of the above should be relied upon as legal advice.

Hello, Walter! The finish line in near.

[matt]

the papyrus and vellum industries are up in arms!

[Walter]

Thanks Elliott.

I am still less than thrilled about the verbiage that accompanies the wonderful piece of legislation that is Sarbox.

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