22 May 2009

Canada Joined by EU, Brazil and Chile in Black Liquor Protest

The following is excerpted from the 21 May 2009 news release by DFAIT.

The Honourable Stockwell Day, Minister of International Trade and Minister for the Asia-Pacific Gateway, announced today that Canada has been joined by the European Union, Brazil and Chile in protesting to the United States about “black liquor” tax credits that have been distorting the international pulp market.

“This U.S. tax credit is providing a large cash infusion to U.S. kraft chemical producers and creating a significant incentive to over-produce pulp at a time when pulp producers—including Canadian producers—are already operating at significantly reduced levels because of the economic downturn,” said Minister Day. “This is causing market distortions and we are asking the U.S. to immediately end the tax credit for black liquor.”

Canadian Ambassador Michael Wilson, Brazilian Ambassador Antonio de Aguiar Patriota, Chilean Ambassador Jose Goni and the head of the European Commission Delegation John Bruton are signatories to a letter sent May 20 to the U.S. Congress, calling on the U.S. to end the tax credit….

“We support the U.S. objective of promoting renewable energy as a means of achieving carbon dioxide reduction and improved energy security, but the application of the Alternative Fuel Mixture Credit to black liquor mixtures is not doing the job,” said Minister Day. “Not only is it distorting the international pulp market, but it is having unintended environmental effects by promoting the use of fossil fuels.”

Black liquor is a byproduct of the kraft pulping process. American producers are eligible for a 50-cent per gallon tax credit by adding small amounts of diesel to the black liquor, qualifying it as an alternative fuel according to the legislation.

In its May 11 budget proposals, the U.S. Administration included a proposal to exclude black liquor burned in kraft mills from eligibility for the tax credit. That proposal is being discussed by the U.S. Senate Finance Committee and the House Ways and Means Committee.