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
    Hulser, 3 Apr 2009 @ 8:01pm

    One year review

    I'm starting to think that it would really be a good thing if every federal law passed by Congress required a periodic review cycle. Review it the first year and maybe even the fifth. Whatever. Just something that would require a vote to "re-up" or extend the lifetime of the law.

    The main benefit would be for lawmakers to look at the consequences of the laws to see if they were really what was intended. Maybe you could even arrange it so that it was easier for the lawmakers to skip out on the re-up vote. This way, someone could vote on a bill that was politically popular at the time -- "for the children!" -- and then, when things calmed down, be conveniently absent the day of the re-up.

    The side benefit is that Congress would be so busy reviewing existing laws that they'd have less time to come up more with new shitty laws.

    reply to this | link to this | view in thread ]

  2. icon
    Stephan Kinsella (profile), 3 Apr 2009 @ 8:13pm

    MTBE flap

    This reminds me of the MTBE issue. IIRC (http://en.wikipedia.org/wiki/MTBE) the feds required oxygenates in gasoline, causing MTBE to start to be widely used. The agri-lobbyists like this too, to get ethanol used for this purpose as well, I believe. Then the government years later bans it, ruining an industry it had helped to create.

    reply to this | link to this | view in thread ]

  3. identicon
    Paul, 3 Apr 2009 @ 8:20pm

    Looks about right....

    Paper companies: "lets take advantage of a loophole to defraud the government of a few billion dollars now and we'll worry about how we're destroying our industry later."

    reply to this | link to this | view in thread ]

  4. identicon
    ToySouljah, 3 Apr 2009 @ 8:34pm

    Re:

    Paper companies: "lets take advantage of a loophole to defraud the government of a few billion dollars now and we'll worry about how we're destroying our industry later."

    Nah...they aren't destroying their industry...besides someone is going to have to sell the government the paper to print all that money they are throwing at the banks.

    Just think...we will all be millionaires soon, but it won't be worth it when a loaf of bread costs you a couple of thousand of that freshly printed money.

    reply to this | link to this | view in thread ]

  5. identicon
    Weird Harold, 3 Apr 2009 @ 8:45pm

    I am just wondering about this:

    "Seventy-three percent of the energy we use in our mill system we produce," says Ann Wrobleski, IP's vice president for global government relations

    What was the other 27%? Did diesel displace something else? If so, what was that something else?

    reply to this | link to this | view in thread ]

  6. identicon
    Anonymous Coward, 3 Apr 2009 @ 9:18pm

    Re: Re:

    Ya but it will only take 3 hours of actual work to pay off my mortgage...

    reply to this | link to this | view in thread ]

  7. identicon
    Andy, 3 Apr 2009 @ 11:34pm

    Re: One year review

    Revisiting laws which have caused unwanted effects is an excellent starting point. Though, the sad fact is there are a great many laws, perhaps all, which have some kind of impact such as this. Nevertheless this is sorely needed, if only to take account of the type of thinking voiced by one cop to a guy asking him to use a little common sense and consider the spirit, rather than the letter, of the law. The cop replied:

    "Sir, when you've got laws, you don't need common sense".

    This is not only an accurate reflection of many people's opinion, it is also deeply disturbing.

    reply to this | link to this | view in thread ]

  8. identicon
    AaronM, 4 Apr 2009 @ 12:29am

    Diesel needed

    The US has had a diesel production shortage over the last few years. Where did the poor conclusion of the article above come from?

    Diesel vehicles are also beneficial compared to gasoline powered ones when it comes to reducing dependency on foreign oil. Diesel engines are 20-40% more efficient.

    reply to this | link to this | view in thread ]

  9. identicon
    Anonymous Coward, 4 Apr 2009 @ 1:09am

    what the @#$%

    reply to this | link to this | view in thread ]

  10. identicon
    elduderino, 4 Apr 2009 @ 1:12am

    news... paper?

    speaking of unintended consequences, werent the paper companies JUST complaining about losing printed news...? or are those different paper companies?

    reply to this | link to this | view in thread ]

  11. identicon
    Gryphon, 4 Apr 2009 @ 5:50am

    Re:

    It's purchased: Natural gas, wood chips for boiler fuel, electricity, etc. Papermills generate a good portion of their process energy, but they still need stuff off the grid.

    This bill should have clarified that the credit is given to transportation industries only, to be used only for devices that directly transport things. That probably would have stopped all this nonsense. But I don't blame someone for taking a credit. Leave the door open and people will eventually come in.

    As it is, I use Kerosene to augment the natural gas heat of my home. I'm wondering if I could claim that...

    reply to this | link to this | view in thread ]

  12. identicon
    JohnMac, 4 Apr 2009 @ 6:35am

    SIMPLE, ADD A CLAUSE TO EVERY PAST AND PRESENT LEGISLATION ALONG THE LINES THAT ANYONE FOUND PREVERTING ANY LAWS IN THIS WAY ,WHERE IT IS OBVIOUS TO ANYONE LET ALONE A JUDGE, THAT ESPECIALLY IN THIS CASE WHERE A NEW PROCESS HAS BEEN ADDED TO THE BUSSINESS FOR OBVIOUSLY NO OTHER REASON THAN TO GAIN ACCESS TO A LEGISLATION BENIFITS.
    I MEAN WHILE YOUR MAKING THE LAWS WHY NOT COVER A LOT OF LOOPHOLES ALL AT ONCE.IM SURE THOSE WITHOUT THE MEANS TO PERPETRATE THIS LEVEL OF FRAUD WONT MIND ELECTING A GOVERNMENT WHO CLOSES, ACCROSS THE BOARD LOOPHOLES THAT ONLY TOP 5% OF THE POPULATION CAN PERPETRATE, BUT SINCE THEY ONLY NUMBER AT 5% OF THE VOTING POPULATION THEY MIGHT HAVE TROUBLE STOPPING A GOVERNMENT DOING THIS?

    reply to this | link to this | view in thread ]

  13. identicon
    Tom, 4 Apr 2009 @ 7:03am

    Government: One giant FAIL after another

    reply to this | link to this | view in thread ]

  14. identicon
    Gene Cavanaugh, 4 Apr 2009 @ 9:54am

    Adding diesel to make paper

    Same-old, same-old. The Federal Government does many, many things that are wonderful, and help make us great (not so much under President Moron and his cohorts, but ....). Then one example of their efforts backfiring, and we get:
    "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".
    Not true, and totally unfair - though I realize it motivates the lynch mobs. Substitute "almost always" with "occasionally" and you have a good article.

    reply to this | link to this | view in thread ]

  15. identicon
    Ed Upstate, 4 Apr 2009 @ 11:14am

    Re: One year review

    very sensible. let me also suggest that also in the making of any LAW its ECONOMIC EFFECTS BE ESTIMATED and documented in the legislation with EXPLICIT MEASURES TESTED after one year and that if triggering assumptions fail - that the legislation AUTOMATICALLY BE REPEALED unless explicitly re-voted into effect - and that again estimates be reworked before such a re-vote and assumptions remeasured after a further year.

    reply to this | link to this | view in thread ]

  16. identicon
    Anonymous Coward, 4 Apr 2009 @ 11:30am

    Re: One year review

    How about a polycentric law system?

    I imagined that the quality of law will go up since congress will have to compete with other lawmakers so that they will get the customer's money.

    reply to this | link to this | view in thread ]

  17. identicon
    Anonymous Coward, 4 Apr 2009 @ 11:37am

    Re: Diesel needed

    Foreign oil? You make it as if trade is a bad thing.

    Yeah. Let cut oursleves from the world. We don't need anybody!

    While we're at it, let cut off trade from our supermarket and disel gas station! We all produce our own food!

    reply to this | link to this | view in thread ]

  18. identicon
    Anonymous Coward, 4 Apr 2009 @ 11:52am

    Re: One year review

    I agree. We DESPERATELY need a sunset law.

    reply to this | link to this | view in thread ]

  19. identicon
    Ben Gordon, 4 Apr 2009 @ 11:59am

    This is what happens when..

    Lawyers (almost all the elected office holders are lawyers) run a country.

    Lawyers,
    1. Thrive on contention and discord
    2. Lie convincingly
    3. Have little or no scientific knowledge
    4. Are trained to apply rules rather than reason
    5. "Usually" have little respect for other disciplines

    reply to this | link to this | view in thread ]

  20. identicon
    Rutiger, 4 Apr 2009 @ 1:19pm

    What Is Seen and What Is Not Seen

    Bastiat only told of these unintended consequences over 150 years ago. Maybe it is about time some of our politicians read this.

    http://www.econlib.org/library/Bastiat/basEss1.html

    reply to this | link to this | view in thread ]

  21. identicon
    Anonymous Coward, 4 Apr 2009 @ 6:24pm

    Re: Adding diesel to make paper

    Same-old, same-old. The Federal Government does many, many things that are wonderful, and help make us great (not so much under President Moron and his cohorts,...

    President Moron left office back in January. Please try to keep up.

    reply to this | link to this | view in thread ]

  22. identicon
    Anonymous Coward, 4 Apr 2009 @ 8:21pm

    Re:

    It is obvious to me you have no education to speak of.

    reply to this | link to this | view in thread ]

  23. identicon
    chuck, 4 Apr 2009 @ 10:11pm

    talk about not thinking about all intended consequences... but what lobbyist was behind this bill???

    reply to this | link to this | view in thread ]

  24. identicon
    mot, 4 Apr 2009 @ 10:20pm

    Re: Re: Adding diesel to make paper

    No, we have had a moron for every president since Reagan, and even then he was an actor. We just get a different actor every 4 to 8 years.

    reply to this | link to this | view in thread ]

  25. identicon
    Anonymous Coward, 5 Apr 2009 @ 8:01am

    Re: Re: Adding diesel to make paper

    President Moron left office back in January. Please try to keep up.

    Replaced by a new moron. Only this one thinks he's a genius.

    reply to this | link to this | view in thread ]

  26. identicon
    Anonymous Coward, 5 Apr 2009 @ 1:31pm

    Re: This is what happens when..

    Please cite a source for "almost all the elected office holders are lawyers." It is a fact that less than half of all members of congress are lawyers, or even have an association with law.

    reply to this | link to this | view in thread ]

  27. identicon
    Pete Braven, 5 Apr 2009 @ 2:10pm

    Add diesel to,...

    The trouble with most laws is that anyine with half a brain can usually find a way to break them. It takes a corporate 'genius' to apply the letter of the law and rake in a chunk of the people's taxes,.. just take a look at the money bank CEOs have lifted from the bail-out funds when they run for retirement in some off-shore haven they stashed our investments into!
    Unfortunately, very few law makers have a corporate genius on the payroll to tell them "That one will backfire badly." This is because the corporate genuis wouldn't be caught working for a living!

    reply to this | link to this | view in thread ]

  28. identicon
    SuperSparky, 5 Apr 2009 @ 8:27pm

    You don't get it

    You guys wouldn't know the obvious if it fell out of the sky, landed on your face, and started to wiggle!

    The problem with most "environmental" laws and those that make them, is all the do is punish. If they just understood how things work, they'd change their tactics. Frequently, the attitude is you MUST do it this way or we'll punish you. The other method is usually a long list of moronic requirements and restrictions written by some idiot without a clue about how business and commerce work.

    Think of PEOPLE and how PEOPLE react to things. Give them an incentive and they act (which is the lesson here). Treat them like crap, with no incentive to change or no other means, and they sneak behind your back.

    How about have incentives for doing things clean and right, and then punishments for the wrong things? It's not rocket science. I hear so many people always demanding punishments yet offering no incentive. Free money, by the way is no incentive.

    The incentives should be simple and not specific. This promotes ingenuity, and besides, lawmakers and environmentalists are idiots when it comes to the environment and business. Incentives like considerably lower tax rates for new cleaner technologies they implement. Incentives to relocate plants to less sensitive areas, and lower employee and income taxes, and such.

    You get much more results with honey than you do with vinegar.

    Things like two years, tax free to help them develop alternative methods of doing something.

    Want to control executive salaries? Offer incentives to give bonuses to all employees instead of just those at the top. Offer to limit investment taxes for stock holders (they elect the execs). Make laws to give contract preference to those that make successful efforts to clean up their act, or by policy are clean and safe, etc.

    I swear, environmentalists and liberals are always too angry to see what the most effective means is to accomplish their goals. Is it only Obama that understands the concept of telling people to go to Hell and yet make them excitedly look forward to the trip?

    All punishments need to be matched with rewards and incentives if you REALLY want to change things.

    reply to this | link to this | view in thread ]

  29. identicon
    Nathanael, 5 Apr 2009 @ 8:37pm

    This is an example of regulation which the experts knew was misguided right up front. The experts said, "Pass a carbon tax. Or cap-and-trade, if you have to."

    KISS is a good principle when it comes to laws. And thinking through the economics is also a good principle.

    reply to this | link to this | view in thread ]

  30. identicon
    Nathanael, 5 Apr 2009 @ 8:39pm

    Incidentally, the way to control executive salaries is to allow stockholders to elect the Board of Directors, which appoints the executives.

    Currently, in big public companies, the stockholders have precisely zero control over the Board of Directors unless they're rich enough to run a 'proxy fight' (spend $100 million off the top, win or lose).

    reply to this | link to this | view in thread ]

  31. identicon
    Rose M. Welch, 5 Apr 2009 @ 10:21pm

    Re: One year review

    I have been saying this for YEARS!!!!!

    reply to this | link to this | view in thread ]

  32. identicon
    Anonymous Coward, 5 Apr 2009 @ 10:30pm

    Re: Re: Adding diesel to make paper

    President "Moron" is the title for any president of the United States. Because they are elected by a large majority of uniformed citizens, or citizens that are voting for the least evil.
    Currently, the recent actions of the president in office now, made me think "President Moron" was a perfect fit. I always like to know the U.S. will be Quadrillion dollars in debt before I reach retirement age.

    reply to this | link to this | view in thread ]

  33. identicon
    Easily Amused, 6 Apr 2009 @ 7:17am

    Re: Re: This is what happens when..

    Please cite a source for "less than half of all members of congress are lawyers". It is a fact that less than 1% of people calling out statistical errors actually back up their complaint with their own sources, and that number drops to zero when they can't even be bothered to make up a fake name.

    reply to this | link to this | view in thread ]

  34. identicon
    ladytrekkie, 6 Apr 2009 @ 8:37am

    Re:

    I work at a paper mill, and I'm betting that that 73% includes black liquor in the recovery boiler, burning bark unsuitable for papermaking, and any power they may be getting off of dam hydros, depending on the mill. They may also be including NCG combustion. The other 27% is gas and purchased power off the grid, but not taxable road diesel, the kind that the tax credit requires.

    reply to this | link to this | view in thread ]

  35. identicon
    ddbb, 6 Apr 2009 @ 12:20pm

    Why do people assume that just because someone is in government, are endowed with some kind of wisdom that allows them to regulate for everyone's benefit? Why is it a surprise that there are unintended consequences to legislation and regulation?

    It is simple:

    -There is no such thing as a free lunch.
    -Incentives matter.
    -Government consists of people. Generally, these are mediocre people at best, a situation made worse by their insulation from consequences and lack of exposure to or compentency in business or anything requiring actual results.

    Elected officials and bureaucrats can weigh political decisions that may affect directly their term in office. However, it is grossly mistaken to think they can weigh costs and benefits at large to the economy, the environment or anything else. They can restrict inputs through coercion, but they cannot dictate outcomes.

    reply to this | link to this | view in thread ]

  36. identicon
    anymouse, 6 Apr 2009 @ 1:39pm

    Just follow the money

    "by chuck - Apr 4th, 2009 @ 10:11pm
    talk about not thinking about all intended consequences... but what lobbyist was behind this bill???"

    Duh, obviously the lobbyists of the paper industry. Is it any surprise that a 'loophole' lets an industry that shouldn't even qualify for the credit steal 8 Billion in taxpayer money? Times have changed, it's not the 'letter' of the law that is lobbied for, as that part becomes public and the and can be reviewed to see what the lawmakers were doing, it's the various 'loopholes' (like not specifying that a diesel fuel credit is to be applied to transportation companies only) that are lobbied for and that the public has a hard time finding any information about.

    There is a reason loopholes are abused, lawyers spend lots of time crafting those loopholes by carefully wording the law to create the loopholes they desire. Don't think any of this is by 'accident' or an 'unintended consequence', you can bet that some lawyer was paid a large amount of money to help craft the loophole that resulted in this 8 billion dollar credit.

    Just my .02 (shifts tinfoil hat to shiny side out, it works better that way, right?)

    reply to this | link to this | view in thread ]

  37. identicon
    David, 6 Apr 2009 @ 2:24pm

    So clearly it's the government's fault that the paper industry did this maneuver? I don't understand... yes, they should close the loophole, but people are acting like this is some sort of OMG paperdieselconspiracy.

    reply to this | link to this | view in thread ]

  38. identicon
    Easily Amused, 6 Apr 2009 @ 5:22pm

    Re: Re: Re: This is what happens when..

    Oh, and I like to play with myself. That's why I'm "Easily Amused".

    reply to this | link to this | view in thread ]

  39. identicon
    nasch, 7 Apr 2009 @ 7:00am

    Re: Re: Diesel needed

    "Buying less foreign oil would be good" is not the same as "international trade is a bad thing". Reading comprehension FTW!

    reply to this | link to this | view in thread ]

  40. identicon
    nasch, 7 Apr 2009 @ 7:03am

    Re: You don't get it

    Incentives like tax credits for using alternative fuels? Did you even read the blog post?

    reply to this | link to this | view in thread ]

  41. identicon
    Anonymous Coward, 7 Apr 2009 @ 8:44am

    OK, I must be dense.

    They add $2.00/gal of unneeded diesel to their existing 'black liquor' and burn the mixture to produce their energy. The government then pays them back at the rate of $.50/gal. How is this making the paper companies any money? They are still spending $1.50/gal for unnecessary diesel.

    What am I missing? (For this post, I am truly an anonymous coward!)

    reply to this | link to this | view in thread ]

  42. 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.

    reply to this | link to this | view in thread ]

  43. identicon
    C Olsen, 16 Apr 2009 @ 2:56pm

    Who's looking out for us.....

    And who is looking out for the "little" guy? Oh ya, I forgot....our political leaders....especially our President!!!

    reply to this | link to this | view in thread ]


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