Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry--handsomely--to use more fossil fuel. "Which is," as a Goldman Sachs report archly noted, the "opposite of what lawmakers likely had in mind when the tax credit was established."
On March 24 International Paper (IP) announced it had received its first check from the IRS for a one-month period this past fall. The total? A whopping $71.6 million. "It's probably close to a billion a year of cash," McClay said. "If you look at the economics of this business, to make that kind of money today you'd have to be on another planet." IP's stock rose 12 per- cent on the news.
So we have a biofuel law actually increasing the amount of fossil fuels used...and at tax payer expense.
In fact, the money to be gained from exploiting the tax credit so dwarfs the money to be made in making paper--IP lost $452 million in the fourth quarter of 2008 alone--that the ultimate result of the credit will likely be to push paper prices down as mills churn at full capacity in order to grab as much money from the IRS as it can.