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Black Liquor Subsidies: A Cross-Border Comparison


July 1, 2009
By Pulp & Paper Canada

To qualify for a biofuel tax credit, U. S. mills started adding diesel to the black liquor they produced. Critics argue that this provides American facilities with a veritable and unfair leg up on Can…

To qualify for a biofuel tax credit, U. S. mills started adding diesel to the black liquor they produced. Critics argue that this provides American facilities with a veritable and unfair leg up on Canadian producers struggling to survive in a cutthroat economic climate. The U. S. subsidy program will expire at the end of 2009.

The impact of the U. S. program was made clear by Domtar’s ability to reopen its pulp mill in Baileyville, Maine in June. The facility had been shut down for close to four months, and Domtar directly cited the refundable tax credits as a major driver behind the decision. At the same time as the Baileyville closure, Domtar temporarily idled a pulp mill in Dryden, Ont., which remained closed until the announcement of the Canadian $1-billion aid package, at which point the company confirmed employees would return to work by the end of July.

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While the U. S. subsidy has upset the world pulp market, several Canadian companies charge that the black liquor subsidies have also allowed integrated producers in the U. S. to lower their prices for newsprint.

Equity Research analyst Kevin Mason describes the discrepancy between the two packages as “Darwinian in design” in that, “the stronger firms will benefit while the weaker ones won’t be helped and will still fail. That’s not necessarily a bad policy, but it is distinctly different that the U. S. program that provides a huge amount of funds to any mill producing black liquor, and the U. S. monies come with no strings attached. The Canadian pulp and paper industry was destined to shrink going forward, and this program won’t change that trend. It will just slow it a bit.”


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