WEEKLY FEATURE: A Government Subsidy that Saves Jobs and the Environment

 I have given the subject of government subsidies a great deal of thought and now realize that I have been wrong, very wrong. We can’t just allow our industrial base to shrink away; Congress must come to our aid. The problems with the $10 billion black liquor subsidy of 2009 were that (1) it only assisted part of our industry (harming others in the process), and (2) it did not save jobs (as the recent IP closure announcements proved). With help from Congress, however, there is a solution to the problems we face in the forest products industry.

This is what we do. First, we need that $10 billion/year back from the government. They can’t take that money away now. We can assure Congress, however, that unlike the black liquor subsidy, this new plan would save the entire pulp and paper industry and guarantee to increase employment! Surely, our representatives would not turn down such an opportunity.

Once we have the $10 billion lined up, the rest will be easy. It is so wonderfully simple. All we have to do is use subsidy funds to buy up enough pulp and paper to keep all the markets balanced. This “extra” demand would allow all mill operations to run full – thus saving every mill job and the multiple of support jobs that revolve around the pulp and paper industry.

This program would actually cost much less than you might imagine. The U.S. has a total pulp and paper capacity of roughly 100 million tons (this includes market pulp plus all paper grades – industrial as well as printing).  Although demand is trending down in many of these grades, the demand shortfall will be less than 10% in virtually every year. Even during the current severe recession, total 2009 demand for market pulp and paper fell only 11 to 12%. Such a drastic decline in demand is not likely to be repeated. Besides, a little cushion would be built into the budget anyway. Even if the plan administrator needed to buy 10% of all pulp and paper capacity (10 million tons) to keep all markets in balance, that would total (with an average cost estimate of $700/ton) only $7 billion. Such a large purchase will rarely be necessary so the program should maintain an average surplus of $4-5 billion a year.

But there is more. Not only does this plan save jobs, it also helps us save the planet from catastrophic global warming… and allows the program to profit in other ways. If you appreciate windmills, solar panels, and ethanol, you’re going to love this. The program will have up to 10 million tons/year of fiber (pulp and paper) to find a home for. This excess supply could not be sold to traditional end uses, of course, but that is not a problem. As you know, environmentalists have done an about-face during the last decade on the use of fiber for fuel. The U.S. government is now subsidizing wood-burning power generation plants. Burning fiber for fuel is both renewable and carbon neutral.

Are you beginning to see the potential here? The program would have access to as much as 10 million tons of renewable, carbon neutral, fuel.  But the plan administrator would not just sell this fiber for its fuel value, of course. That would be wasteful. First, carbon offsets would be sold to a carbon exchange so that a variety of environmentally sophisticated customers, such as magazine and catalog publishers, can help save the world.

It would be a beautiful thing. The program would be paid a great deal of money for these carbon offsets. Then, the program administrator could also sell the fiber “fuel” to utilities that are required by law to generate a percentage of electricity from renewable energy sources. It would be perfect timing. A few years ago all this excess paper would have been worth very little, but legislation has created both a market for carbon offsets, and a market for this special fuel.

Hopefully the U.S. government could be convinced to funnel the three sources of revenue (the unused funds from the $10 billion/year subsidy, carbon offset proceeds, and income from fiber sales to utilities) into a “sustainability” fund. Within five to ten years the sustainability fund would be expected to grow to the degree that we would no longer need the annual government funds. In addition, the increased size of the fund would enable the program to continue in the future, no matter how far secular demand for paper falls. The greater the decline in paper demand from traditional sources, the more fiber that could be used to generate clean, planet-saving fuel.

This proposal may not be perfect, but most will acknowledge that it is far superior to the energy bills that Congress has been writing. I have hope that it will prove to be a great success. Who knows, perhaps someday I might even receive a call from the judges that select Nobel prize winners in economics. I understand that these Nobel judges are not all that discriminating.


3 responses to this post.

  1. Posted by PulpMillGuy on January 12, 2010 at 2:11 pm

    You may be on to something… Then the mills could finally get their prices up, since any excess supply created by reduced demand would be sold at prime prices as fuel. But you are thinking too small. Such a simple way to end the business cycle, simply let every business maximize production, and let the Government buy anything they can’t sell on the open market! Surely there is something “green” we could do with all excess industrial output. We could end unemployment the same way, it may cost a few hundred billion more, but since unemployment will fall off with the Government-buy-everything-anyone-can-make subsidy, just give everyone that is still unemployed a $50,000/yr “green job” of sitting in a field somewhere quietly for 8 hours a day not driving, eating, or using electricity. Isn’t it beautiful to have an entity like “Government” that can write checks for Billions and Trillions out of thin air… I’m sorry, I meant to say by only increasing the taxes on the top 5% of wage earners.


  2. Great ideas. This is the kind of creativity we need in Washington.


  3. Posted by PulpMillGuy on January 12, 2010 at 11:30 pm

    The scary thing is that it really isn’t that far off from what they are trying to do. With a 1.75 Trillion Dollar Budget Deficit for 2009, confiscating 9% of the GDP of the entire European Union wouldn’t be enough to cover Washington’s “creativity beyond it’s means” just for last year. The top 5% of wage earners had better start looking for a 2nd job.


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