Under a new federal program, mills across the country can apply for money to improve energy efficiency and environmental performance.Under a new federal program, mills across the country can apply for money to improve energy efficiency and environmental performance. (Jeff Bassett/Canadian Press)

The federal government is rolling out a $1-billion aid package for Canadian pulp and paper producers.

Natural Resources Minister Lisa Raitt and Denis Lebel, the minister of state for the Economic Development Agency of Canada for the Regions of Quebec, announced the package in Ottawa on Wednesday.

What is black liquor?

Mills have long burned "black liquor" — a byproduct created when wood is processed into fibre — to generate steam energy. According to the Center for Paper Business and Industry Studies, about 240 million tons of black liquor are produced every year around the world.

In March 2009, the financial services group J.P. Morgan released a report suggesting many U.S. mills were "burning black liquor into gold." Under the U.S. program, mills that combine diesel fuel with a pulp byproduct can qualify for a biofuel tax credit. The report said an average sized U.S. pulp mill would burn more than 175 million gallons of black liquor in a year, earning an annual credit of $90 million US.

Raitt said that only mills producing "black liquor" between January 1 and December 31 of this year will be eligible. Black liquor is a biomass by-product of the chemical pulping process that is used by pulp producers to generate energy for their mills.

The federal government said that under its Green Transformation Program, it will provide 16 cents in funding per litre of black liquor, up to a maximum total of $1 billion.

Raitt said 27 mills across the country will be eligible under the program.

Producers participating in the program will be required to invest the money over the next three years on improvements to their energy efficiency or their environmental performance at any pulp and paper mill in Canada.

The move comes after Canadian firms sought aid from the government in response to a black liquor subsidy received by U.S. producers, also 16 cents a litre. They get a tax credit for using the alternative fuel, which is worth as much as $6 billion to $8 billion.

Pro and con

The head of a Canadian forestry business group applauded Ottawa's move, but Canada's largest forest union denounced it.

"It won't save any mills or prevent further job loss," said Communications, Energy and Paperworkers Union president Dave Coles.

The money cannot be used to lower the cost of making pulp, which is necessary to compete with the U.S. mills that are using the U.S. black liquor subsidy to cut their costs and sell more pulp, he said.

"In the short term, mills will still close because in order to take advantage of the subsidy, they must invest in capital," Coles said. He fears this will lead to more lost forest industry jobs on top of the 55,000 the union says have already disappeared over the last two years.

However, Avrim Lazar, president of the Forest Products Association of Canada, welcomed the program. "This is a government getting it right," he said, adding that it will lead to a greener industry and will conserve jobs.

"This is very smart spending," Lazar said.

Violates trade deal, U.S. group says

The U.S. Coalition for Fair Lumber Imports said the program might violate the U.S.-Canada Softwood Lumber Agreement if companies that have both lumber and pulp operations benefit.

But Trade Minister Stockwell Day rejected the complaint, saying the government consulted lawyers to make sure it does not run counter to the agreement.

He also said he talked to the U.S. Trade Representative Ron Kirk, who was sympathetic but did not provide any guarantee that the U.S. government would not challenge the program.

With files from The Canadian Press