Congress May Rescind Ridiculous Subsidy To 'Big Paper'

Last week, we discussed one of the most ridiculous cases of a subsidy/regulation gone awry. Basically, in 2005, the government instituted a $.50 per gallon subsidy for alternative fuels, such as diesel or biofuel, when iused in certain industrial processes.

But even if the law had vaguely noble aims, it ended up being horribly abused by big paper makers who started to add diesel to their production processes, when previously they used no fossil fuels at all. So in essence the subsidy causes them to use more fossil fuels, while also pumping up paper companies to the tune of up to $6 billion.

Well done, Congress.

Anyway, here’s some good news. Some lawmakers are looking to change the law, NYT reports. Sens. Jeff Kerry and John Binghaman have both expressed outrage and a desire to close the loophole, though the paper industry is fighting back, arguing that in this tough economy, it’s no time for the government to be pulling back cash from the paper industry. And they say they’re not actually violating the spirit of the law

“These credits could provide a much-needed 2009 lifeline for the industry,” according to a Deutsche Bank report released last month titled “Liquored Up?”

A spokeswoman for International Paper, Kathleen Bark, said the company had been mixing small amounts of diesel to qualify for the tax credit, but that it displaced “other fossil fuels that would have been used in the process.”

“The alternative fuels tax credit supports a sustainable environmental practice that deserves tax treatment similar to that of other renewable energy sources and fuel types,” she said in a statement.

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