Government Spent $8 Billion Subsidizing Unnecessary Use Of Diesel Fuel

This is what happens when the government attempts to manage our economic decisions for us.

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.”
The massive tax subsidy has barely been reported in the press, but it’s caused a stir in the paper industry, which is struggling to stay profitable in the teeth of the recession. “Everybody’s talking about it,” paper industry analyst Brian McClay told me. “In the US and elsewhere in the world–in Canada and Brazil and Chile and Europe.”
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.
The origins of the credit are innocent enough. In 2005 Congress passed, and George W. Bush signed, the $244 billion transportation bill. It included a variety of tax credits for alternative fuels such as ethanol and biomass. But it also included a fifty-cent-a-gallon credit for the use of fuel mixtures that combined “alternative fuel” with a “taxable fuel” such as diesel or gasoline.

I’m not expert on the process, but apparently, paper pulping doesn’t need an external fuel source. The process creates internally a combustible substance called “black liquor” which qualifies as a biofuel. If the government had kept its long, stupid nose out of the process the paper companies would have gone on using that fuel alone for its processes. But because the government included a massive tax credit for mixing diesel with biofuels, the taxpayers are stuck doling out $8 billion for the unnecessary use of a biofuel.
A lot of that happening at a time when oil prices were sky-high.
Just another victory for big government.