Taxpayers Subsidizing Paper?

In the latest installment of "Greed that Makes Me Want to Throw up in my Mouth" we have International Paper. It started innocently enough with the following press release on March 24th:

In January 2009, the company was notified that its registration as an alternative fuel mixer was approved. On March 20, 2009, the company received its first check from the Internal Revenue Service in the amount of $71.6 million related to an alternative fuel mixture produced and used at 15 of its mills for the period of November 14 to December 14, 2008. The company will continue to submit refund claims based on actual mill production and use of an alternative fuel mixture and will provide investors with information relating to future credits during its regular quarterly earnings calls.

No doubt in part to that new taxpayer revenue source, International Paper's stock soared to its most recent peak, up more than 100% from when the S&P hit bottom on March 9th (to be fair, the stock had gotten slammed before this run-up). A win-win-win right? International Paper gets a "first check" of $71.6 million from taxpayers (thoughts are it could become as much as $1 billion this year), while helping the environment, AND the U.S. becomes less dependent on oil... right?

Core Economics with the abridged reasoning as to why that is incorrect:

Congress passes bill to encourage fuel mixtures as a way to weaning the economy off oil. Subsidises usage of that fuel to the tune of 50c per gallon. Paper producers, who had been using a by-product of their process as a fuel for decades, now add diesel to it in order to claim the subsidy.

The Nation with the full details (bold mine):

Since the 1930s the overwhelming majority of paper mills have employed what's called the kraft process to produce paper. Here's how it works. Wood chips are cooked in a chemical solution to separate the cellulose fibers, which are used to make paper, from the other organic material in wood. The remaining liquid, a sludge containing lignin (the structural glue that binds plant cells together), is called black liquor. Because it's so rich in carbon, black liquor is a good fuel; the kraft process uses the black liquor to produce the heat and energy necessary to transform pulp into paper. It's a neat, efficient process that's cost-effective without any government subsidy.

By adding diesel fuel to the black liquor, paper companies produce a mixture that qualifies for the mixed-fuel tax credit, allowing them to burn "black liquor into gold," as a JPMorgan report put it. It's unclear who first came up with the idea--Wrobleski (Ann Wrobleski is International Paper's vice president for global government relations) told me it was "outside consultants"--but at some point last fall IP and Verso, another paper company, formerly a part of IP, began adding diesel to its black liquor and applied to the IRS for the credit. (Verso nabbed $29.7 million at just one of its mills in the final quarter of 2008 for its use of mixed fuel.)

Despite the obvious contrivance of the procedure, Wrobleski is unapologetic: "The credit is supposed to encourage the use of green fuel." Sure, I said, but isn't it a bit weird you're now adding diesel fuel to the process in order to take advantage of it? "It is what it is," she said.

"It is what it is"? Maybe IP should have their traditional PR contact handle these types of media requests going forward....

Source: Yahoo