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Black Liquor Tax Credit

Black Liquor Tax Credit

What Was the Black Liquor Tax Credit?

The supposed black liquor tax credit was a tax loophole in the Alternative Fuel Mixture Credit (AFMC) that was taken advantage of by certain companies in the woodland products industry beginning in 2005.

The federal tax credit was expected to urge companies to utilize biofuels by remunerating them for blending them in with petroleum derivatives. The loophole permitted paper companies, who were at that point utilizing the biofuel known as black liquor, to do the reverse of what the bill expected — add diesel to their black liquor to meet all requirements for billions of dollars in tax credits. The credit was extended in some measure through the finish of 2020 however a change in the law's language closed the loophole.

Black liquor is a biomass side-effect of wood mash production.

Understanding the Black Liquor Tax Credit

The Alternative Fuel Mixture Credit was intended to urge companies to deliver and utilize more biofuels. It gave companies a credit for creating fuel that was a combination of gasoline and alternative sources, for example, biodiesel for its own utilization or available to be purchased.

Companies were given 50 pennies credit for each gallon for each gallon of alternative fuel they utilized.

Regardless of whether intentionally, the AFMC permitted the tax credit to be asserted by companies that were at that point utilizing biofuel, that result of wood mash production, yet could include a conventional fuel to be eligible for the credit.

Another result of the AFMC was to distort the global paper market by making U.S. paper products less expensive. This made Canadian lawmakers make a comparable subsidy to stay competitive with American companies.

The Energy Policy Act

U.S. President George W. Bush marked the Energy Policy Act in August 2005, and it was extended in 2007. The act tended to a large number of issues encompassing national energy production, including effectiveness, renewable energy sources, oil and gas, and coal production.

The law gave loan guarantees to companies that utilization or foster technology that maintains a strategic distance from ozone harming substance results. It likewise increased the recommended amount of biofuel required to be mixed with gasoline in the country.

Companies that mixed traditional and biodiesel fuels qualified for the AFMC under the energy bill.

Paper and timber companies found the loophole in the bill that permitted them to meet all requirements for the tax credit just barely of diesel with black liquor. Black liquor is the biomass side-effect of wood mash production, which is generally used to power plants and factories. The combination, which the industry called an alternative fuel source, qualified under the rules of the credit, albeit in practice, it was the exact inverse cycle the credit was expected to advance.

The End of the Black Liquor Tax Credit

Under a series of extensions of the law, the AFMC kept on being a part of the U.S. Tax Code through the entry of the Further Consolidated Appropriations Act of 2020. The tax credit remained yet the Act modified the definition of eligible fuels. That at last excluded any gasses made from biomasses.

Companies that recorded at the latest Jan. 8, 2018, would never again meet all requirements for the credit.

The IRS framed rules for companies to make one-time claims for credits for the 2018 and 2019 tax a very long time under Notice 2020-8.

Special Considerations

The goal of Congress in making the Alternative Fuel Mixture Credit and the tax credit that went before it, the alcohol motor fuel tax credit, was to make incentives for the industry to make liquid motor fuels out of biomass. Since wood mash processing in every case left biomass, transforming it into usable liquid fuel would be monetarily and earth helpful, and the liquor motor fuel tax credit was planned to speed up research and conversion to biomass fuels. In June of 2009, black liquor became eligible for the refundable AFMC. Yet, as mentioned above, it was excluded from the rundown of eligible fuels.


  • The Alternative Fuel Mixture Credit was expected to urge companies to utilize biofuels by blending them in with petroleum products.
  • Detecting a loophole, some paper and timber companies mixed a result called black liquor with diesel to meet all requirements for billions of dollars in credits.
  • A correction to the law changed the terms of qualification for the credit in 2020.