Black Liquor Bungling

Thursday, April 16th, 2009

I’ll refrain from a strong temptation to weave several amusing references to the term “black liquor” and simply state that my preference in liquor tends more toward a golden color. Let’s define what it is and why it is important.

Black liquor is a byproduct of the papermaking process.

Black Liquor

Pulp mills use caustic chemicals to boil wood which separates pulp from combustible chemicals in the wood. What is left after the pulp is removed is called black liquor, which is then refined and burned as an energy source in the mill. Nothing new about it; been going on for decades.

What IS new is that the US taxpayer is now subsidizing it through a loophole in the 2005 Highway Bill which was intended to encourage the use of alternative fuels in cars and trucks by crediting the excise tax when a taxpayer blended at least 0.1% of a taxable fuel (kerosene, diesel or gasoline) with the qualified alternative fuel.

This credit never applied to the paper industry, until the powerful paper lobby managed to get it applied to them in December 2007. What was estimated to be a $61 million cost to taxpayers could balloon to $10 BILLION according to Kevin Mason of Equity Research Associates. Just as maddening, mills must blend fossil fuels with the black liquor to be eligible for the credit.

Understandably, Canadian mills are crying foul, because the credit changes the economics of production, with the potential to cover perhaps 60% of pulp production costs.

We’ll leave those points to be debated by others, while focusing on this related issue:

This legislation is environmentally bankrupt. It discourages recycling.

Recycled corrugated is mechanically pulped and does not create the black liquor byproduct. The tax credit changes the economics of pulp production in favor of virgin pulp over recycled pulp.

The result: more trees cut down (aka carbon dioxide gatherers) more energy used, and more pollution created. This is going in the WRONG direction.

At least two U.S. containerboard mills recently switched from recycled corrugated to wood chips as their fiber source (source: Dead Tree Edition), with more on the way.

Commodity prices for recycled paper have crashed during the past year, (discussed in a previous blog “Freefalling Recycled Paper Prices“) raising fears that environmentally friendly practices driven by economics may falter. Ill conceived tax policy only adds (alternative) fuel to that fire.

Sound off about the environmental effect, or the other ramifications of this law by posting a comment below.

Tags: Carbon Sequestration, environment, green movement, paper recycling
Posted in Business | 1 Comment »

Freefalling Recycled Paper Prices

Friday, January 16th, 2009

What a difference a few months make. The commodity price decline experienced during the second half of 2008 is well known. Oil prices are probably the most widely reported since each of us can easily translate $147 per barrel equals $4 gasoline while $38 per barrel six months later equals $1.35 gasoline. Copper, aluminum prices are at three year lows.

SOP prices have collapsed as well. What?

Sorted Office Paper is the most common grade of bulk, baled, shredded paper purchased by mills to be recycled into post consumer paper products. The September price of $235 per ton has fallen to $120 per ton.

Why is that important? Two reasons:

1.) its impact on the document destruction business economics, and
2.) how recycled paper prices affect the “green” movement

The document destruction industry relies upon “back end” revenue generated by the bulk sale of shredded paper. Companies charge their customers to pickup and shred confidential documents, and in a very competitive market, pricing and margins are influenced by an expectation of the price mills will pay for the shredded paper.

1300 pound bales of shredded paper ready for recycling

Margins will be squeezed, since contracts for service typically do not provide for adjustments based upon SOP prices. Companies prefer not to disclose that they get revenue coming and going. Sneaky? No. Transparent? Now it is.

More disturbing, is how recycling programs may be affected.

How many people would be willing to pay an additional service fee for their “free” curbside paper recycling usage? Will companies who jumped on the green bandwagon and began scrap paper recycling programs because recyclers would pay them $50-$100 a ton for non-confidential scrap paper drop their initiatives once those recyclers begin to charge for hauling it away?

Even more grim is the prospect that we are close to a price level where it is more economical to landfill paper than recycle it, and how will that affect corporate decisions when the bottom line conflicts with the desire to do the right thing for the environment?

What do you think? Will higher costs trump environmental impact? How sustainable is the sustainable movement when faced with this economic shift? I’d love to hear your comments.

Tags: document destruction, environment, green movement, landfill, paper recycling
Posted in Business | 7 Comments »