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Tall Challenge For Pine Chemicals

Clean energy legislation threatens industries based on renewable biomass

by Michael McCoy
November 23, 2009 | A version of this story appeared in Volume 87, Issue 47

Credit: Arizona Chemical
Arizona Chemical refines tall oil at this plant in Savannah, Ga.
Credit: Arizona Chemical
Arizona Chemical refines tall oil at this plant in Savannah, Ga.

One of the world’s oldest industries could be damaged by legislation drafted in response to one of the world’s newest concerns.

Executives at Arizona Chemical, the leading U.S. producer of pine-derived chemicals, fear that greenhouse gas control provisions in the clean energy bills now working their way through Congress could inadvertently rob their firm of the raw materials they use to produce a host of naturally derived chemicals.

Arizona finds itself in the same predicament that producers of oleochemicals have faced since government started providing incentives to the biodiesel industry several years ago. Well-intentioned legislation meant to encourage reductions in greenhouse gas emissions is threatening these firms’ livelihood.

People have been extracting turpentine, rosin, and pitch from sticky pine tree gum for thousands of years. The earliest reference to pine chemicals is no doubt the biblical passage in Genesis where God instructs Noah to “pitch the ark within and without.” The modern pine chemicals industry refines by-products known as crude tall oil and crude sulfate turpentine that are created during the wood pulping process.

Arizona and its chief competitors, Georgia-Pacific and Westvaco, convert tall oil into fatty acids and rosin at plants located mainly in the southeastern U.S. The fatty acids are used in products such as paints and printing inks, where they often replace volatile organic compounds. Rosin is upgraded into adhesive resins and ingredients for tires.

Until about five months ago, Gary Reed, an Arizona vice president, didn’t have much business in Washington, D.C. But then the House of Representatives passed the American Clean Energy & Security Act (H.R. 2454), which among other things encourages firms to create energy by burning what the act calls “renewable biomass.” The Senate began working on its version of clean energy legislation, S. 1733, last month.

The problem for the pine chemicals industry is that the legislation considers tall oil and turpentine to be renewable biomass. Companies that burn them for energy won’t have to pay a tax on the carbon dioxide created by the process, explains Mike Husain, who is in charge of sustainability for Arizona’s North American operations. The tax is expected to fall between $10 and $28 per ton of CO2 emitted, Husain says, enough of a savings to divert these raw materials from the pine chemicals industry.

Now, Reed and Husain make frequent trips to Washington from Arizona’s Jacksonville, Fla., headquarters. Their goal is to explain to legislators that being upgraded into specialty chemicals is a far better use for tall oil than burning it. The hundreds of people employed in Arizona’s U.S. plants depend on the continued health of the industry, they stress.

On their trips, they carry a study commissioned from the consulting firm Arthur D. Little. It concludes that if U.S. tall oil is diverted to energy production, it will be replaced in the chemical marketplace by petrochemical-based alternatives and imported Chinese rosin. Creating these alternatives, Arthur D. Little calculates, will result in 370,000 metric tons of additional annual CO2 emissions. Thus, any CO2 gains achieved from burning tall oil for energy are negated when alternatives are made.

Moreover, the economic loss tied to such a shift would be large. Turning tall oil into chemicals in the U.S. creates $800 million in economic benefit, the consulting firm concludes, whereas burning it would bring in only $160 million.

Reed and Husain have been taking this message to legislators from Florida, Georgia, and Ohio, where Arizona’s plants are located, and to influential lawmakers such as Rep. Henry A. Waxman (D-Calif.), chairman of the House Energy & Commerce Committee. According to Reed, the visits have opened legislators’ eyes to the pine chemicals industry’s role as an environmentally friendly waste disposal service for paper companies. “Congressman Waxman’s chief adviser sat there in a conference room one day and told us: ‘Guys, we didn’t even know you existed,’ ” Reed recalls.

That’s a problem that Dennis Griesing has been confronting for several years now. Griesing is vice president for government affairs at the Soap & Detergent Association, a trade group that represents both cleaning product companies and oleochemical makers. He’s been trying to limit the damage that biodiesel production incentives have inflicted on U.S. companies that make oleochemicals out of tallow and other fats.

For Griesing, the clean energy bills are tomorrow’s battle. Given the Senate’s late start and the general preoccupation with health care reform on Capitol Hill, he doesn’t expect much movement toward law this year.

Griesing’s been fighting for a fair share of tallow since 2006, when government subsidies for making biodiesel started diverting fats and oils from their traditional use in oleochemical production. The diversion threatened to accelerate in 2007 when the Treasury Department ruled that petroleum companies that add fats and oils to their refineries to make biodiesel could qualify for a $1.00-per-gal tax credit.

Armed with this incentive, ConocoPhillips and the meat giant Tyson conceived a big facility that would have sucked up considerable amounts of tallow otherwise bound for midwestern oleochemical producers such as Evonik Industries and AkzoNobel. A provision in the 2008 financial bailout bill, though, cut the credit in half, and the partners dropped the plan.

Today, Griesing’s big concern is “indirect land use change,” a calculus of how the diversion of U.S. farmland from food to fuel production affects greenhouse gas emissions in other countries. Slipped into the 2007 Energy Independence & Security Act, indirect land use change provisions could prompt the Environmental Protection Agency to strip tax incentives from vegetable-oil-based biodiesel production. Griesing’s fear is that biodiesel companies would turn to animal fats as their raw material, bidding away more supplies from oleochemical makers.

In each case, he complains, laws are being made with no consideration for the traditional businesses that upgrade the often unwanted by-products of agriculture into high-value chemicals. And the net could be cast wider, he warns, as regulators look for more ways to reduce greenhouse gas emissions. “If you’ve got a triglyceride or a sugar molecule, the government wants you,” Griesing says.

As the Arizona executives learn more about the stakes involved, they are reaching out to others in their industry. Reed says he is engaging the Pine Chemicals Association, a trade group made up of producers and users of pine-derived chemicals. He has even contacted competitors such as Georgia-Pacific and Westvaco.

As a veteran of the fight for renewable feedstocks, Griesing encourages companies such as Arizona to make their voices heard within their own industries and even beyond. “The traditional users of raw materials now being directed to biofuels are finally starting to coalesce,” he says. “We’re beginning to get an ear on Capitol Hill.”


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