Just Add Diesel: How Unintended Consequences Rob Taxpayers Blind

from the regulatory-mess dept

One of the reasons we're often skeptical of legislative/regulatory solutions to things is that they almost always have unintended consequences that do a lot more harm than good -- and quite often those unintended consequences are the exact opposite of what the regulation was supposed to do. Tim Lee points us to an excellent, if depressing, example. A few years back, the government passed a bill to encourage "greener" transportation by providing tax credits for the use of alternative fuels -- including for the use of fuel mixtures that combined alternative fuels with gasoline or diesel. As Chris Hayes explains, this resulted in America's paper companies suddenly dumping diesel into their production process solely to qualify for the tax credit.

The end result is staggering. The paper companies are wasting diesel fuel (remember, the whole point of this bill was to decrease the use of such fuels) by adding it to a process even though it's entirely unnecessary, and then claiming the tax credit. And, boy, is it worth it. The top ten paper companies are likely to take in $8 billion dollars from this tax credit. The money coming from this is so valuable that it dwarfs the actual paper business. The industry is making a lot more money throwing diesel fuel away than actually selling paper. And that is a perfect example of why even the best intentioned regulators often end up doing an awful lot of damage.

Filed Under: green energy, paper manufacturers, politics, regulations, unintended consequences

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  1. identicon
    Caitlin, 7 Apr 2009 @ 5:31pm

    From someone who knows what she's talking about

    I work for a paper mill, and there are plenty of positive "unintended consequences" that you're not thinking about. The added diesel increases the Btu value of fuel burned in recovery boilers, increasing efficiency and reducing emissions slightly. I've heard from others in the industry that this has actually reduced their purchased power.

    The IRS signs off on every mill that qualifies before they can start burning, and the people that this actually stands to help the most are independent mills that don't have other suffering industries to support with the economy the way it is. While a lot of people within the industry have their reservations about his, ultimately no one is going to say that keeping afloat and being able to keep paying workers is a bad thing. I certainly don't think so.

    And, seriously, people, do you have any idea how much taxed road diesel is actually involved? To qualify, at least 0.1% diesel by volume of black liquor is added, and most mills will skirt pretty close to that ratio, since the idea is not to burn a lot of diesel. In a year without a tanked economy, we'd make considerably more money on paper, and it varies mill to mill, depending on the product, so don't just go spouting off tasty gossip like it's fact, please.

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