Tomorrow’s Cap and Trade Horror Story Today

The Nation’s Chris Hayes writes:

Two years in Washington have started to make me feel jaded. I’ve come to expect that even nobly conceived laws will be manipulated and distorted for private ends. But once in a while I hear a story that gives me the queasy feeling that I’m nowhere near cynical enough. Such is the case with the tale of the paper industry and the alternative-fuel tax credit.

Thanks to an obscure tax provision, the United States government stands to pay out as much as $8 billion this year to the ten largest paper companies. And get this: even though the money comes from a transportation bill whose manifest intent was to reduce dependence on fossil fuel, paper mills are adding diesel fuel to a process that requires none in order to qualify for the tax credit. In other words, we are paying the industry–handsomely–to use more fossil fuel.

After a short and sweet summary of how paper is made, and how U.S. paper makers are gaming generoues green technology tax credits, Hayes concludes:

Whether or not Congress gets around to turning off the spigot, the episode is a useful reminder of the persistently ingenious ways the private sector can exploit even well-intentioned legislation. Considering that the success of the Treasury’s recently announced plan to rescue the financial sector depends, in part, on the private sector not gaming the rules, the black liquor story seems particularly germane.

We also share Hayes’ concerns about Geithner’s plans. But if he thinks the a single alternative fuel tax credit is ripe for private sector exploitation and abuse, he should study carbon cap and trade much more closely.