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Canada opposes biofuel tax credit for US forestry industry

The Globe and Mail reports that Canada, the European Union, Brazil and Chile have sent a letter of complaint to the United States over $8 billion in tax credits available to the US forestry industry for producing a mixture of diesel and biofuel made from pulp mill waste products.
The letter claims “US forestry companies are reaping a windfall from a loophole in the law intended to encourage the production of cleaner-burning biofuels.”

“US-based pulp producers are qualifying for a 50-cent per gallon refundable tax credit by mixing small amounts of diesel with the pulp byproduct, rather than using straight biofuels.”

“Critics say the tax credits can amount to as much as 30 per cent of the selling price of the pulp, thereby creating a massive subsidy.”

The US forestry industry says “the law requires them to add some diesel to the biofuel mix to qualify for the credit, but that the primary biofuel ingredient is replacing fossil fuels previously used to run their operations.”

Canada is calling on the United States to terminate the tax credit, and says it is exploring all options including a World Trade Organization challenge.

The Forest Products Association of Canada has urged Ottawa to match the subsidy rather than pursue a trade action.

The US tax credit expires in seven months and is unlikely to be renewed.

The article – Trade tensions rise over U.S. ‘black liquor’ subsidy – can be read at http://www.globeinvestor.com/servlet/story/GAM.20090522.RPULP22ART1937/GIStory/.