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Subsidy loophole could force Snowflake paper mill to shut down

By Laurel Morales

Snowflake, AZ – A recycled paper mill in Snowflake may have to shut its doors and lay off hundreds of employees all because of an obscure substance known as "black liquor." Catalyst Paper's U-S competitors are taking advantage of a legal but misused tax benefit that's running the Snowflake mill out of business. Arizona Public Radio's Laurel Morales explains.

It all started with Congress's 2005 highway bill. The bill included a tax incentive for businesses to power their vehicles with alternative fuels such as ethanol. Businesses could receive a 50-cent tax credit for every gallon of gas if they blended it with an alternative fuel. Two years later Congress expanded the law to include a wider range of alternative fuel users, like paper mills.

This is where "black liquor" comes in. Black liquor is a dark sludge created when wood is transformed into pulp. Most of the paper industry uses it to power its mills. All those mills had to do was mix some fossil fuel in with their black liquor and easy money -- billions of dollars in federal subsidies.

The problem for Catalyst is a recycled paper mill doesn't use black liquor.
Instead they use biofuel, coal and natural gas.

WEBB: Basically my own tax dollars are being used to get rid of my job and it's wrong.

Jason Webb has worked for Catalyst Paper for almost 22 years. Up until recently he thought of the mill as a great place to work - good pay, nice benefits.

WEBB: This is one of the jobs my uncles, my dad, a lot of my friends started and retired off of. It was that good a living.

But it's no longer a stable place to work. This month the mill is only operating for six days. Webb says his wife's income keeps them afloat for now but his friends are facing

WEBB: Bankruptcies, foreclosures, vehicle repossession. It's getting sad. It's getting very sad.

We sit in Webb's sunny kitchen, where he's raising his three teenage kids. Webb's looking for work but there aren't many jobs, especially in the small town of Snowflake.

SFX: paper mill

At the mill local officials take a tour before discussing the crisis at hand.

Ironically an environmentally friendly paper mill has been penalized. In addition to making 100 percent recycled paper, the Snowflake mill has a biomass facility on site and a neighboring farm uses its effluent to water crops. Catalyst's competitors who benefit from the subsidy can sell paper at lower prices. And in this economy newspapers are suffering and they'll take the lowest price they can get. John Cole is the mayor of Taylor, where many people who work at the plant live.

COLE: Here we have a perfect example of a company that's invested millions of dollars to change its practices to become more environmentally friendly to incorporate recycling, conservation of resources. And here's a piece of legislation that undermines all those efforts. I believe it's against everything we're working for and striving for in our country.

Cole says a shut down would be devastating for the community. Local officials and the mill's general manager have enlisted the help of Arizona First District Congresswoman Ann Kirkpatrick. She recently stopped by the mill to talk about a bill she co-sponsored in the House that would prevent paper mills from exploiting the loophole.

KIRKPATRICK: I think this was an unintended consequence of the original legislation. I honestly don't think a loophole of this size was ever contemplated originally. It's very unfair. It creates an unlevel playing field in a competitive market and the kind of market, manufacturing jobs we really want in rural Arizona.

Similar legislation has been introduced in the Senate. The freshman Congresswoman says she doesn't know how fast they can get it through.

KIRKPATRICK: We hope it can be closed very, very quickly because it means the survival of this company.

General Manager John McKee is working on a strategy to save the mill.

MCKEE: We're trying to reinvent ourselves very quickly so we can stay open longer I can tell you we intend to fight with everything we got.

Some paper mills in Canada, Brazil and the European Union have been forced to shut down because of this tax credit. But the majority of mills in this country benefit from it. McKee tells local officials that taking advantage of the loophole is plain wrong.

MCKEE: And I think that's what we got to get out to Washington. We got to make them realize the details this is going to get overturned.

The subsidy is up for review in Washington in October but McKee says he doesn't know if they can keep their doors open that long.

For Arizona Public Radio I'm Laurel Morales in Snowflake.