Paper Companies' Windfall of Unintended Consequences

Jamie found a post on ScienceBlogs that serves as a stark example of the law of unintended consequences, as well as the ability of private industry to game a system of laws to their advantage. It seems that large paper companies stand to reap as much as $8 billion this year by doing the opposite of what an alternative-fuel bill intended. Here is the article from The Nation with more details and a mild reaction from a Congressional staffer. "[T]he United States government stands to pay out as much as $8 billion this year to the ten largest paper companies.... 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. 'Which is,' as a Goldman Sachs report archly noted, the 'opposite of what lawmakers likely had in mind when the tax credit was established.'"

Comments

lawmakers

[Anonymous Coward]

Incompetent lawmakers are incompetent.

Re:lawmakers

[RichardJenkins]

Precisely. We live in a society where 'corporate selection' fosters public companies who mindlessly take the action which most increases value for their shareholders. If a law is written such that it can be gamed - it will be.

Lawmakers should take that into account and legislate around it; cause they sure ain't gonna change Corporate American Culture any time soon.

Re:lawmakers

[mrcaseyj]

In the short term the solution for this is for the president to order the IRS to withhold these payouts until congress can close the loophole. If the paper companies sue, they would get laughed at or scolded by the judges as this is an obvious and evil perversion of the intent of the law.

Re:lawmakers

[OeLeWaPpErKe]

Exactly, and in this case, they did just that : they pursued their own intrest the way the law forced them to, instead of the most profitable (and therefore, at least in this case, most environmentally friendly, way).

In general, the cheapest way for factories is often the one using the least raw material, and therefore at least close to the most environmentally optimal way.

but I think copious legislation should be applied to ensure that you can only have achieve this by benefiting society.

You're assuming that laws always benefit society. I guess women should be glad they get stoned in muslim countries. After all, it benefits society, right ? That's what the law does. Of course, very nearly all muslim countries are, at best, third world countries, racist dictatorships or worse. Seems their laws are less than optimal ... for both society and the environment.

But of course, "America is different !". Oh wait, not at all in this case. I guess that what happened here, totally in compliance with the law, and bad for BOTH society and the environment ... means nothing to you ?

But this was in compliance with the law, and against market forces, so surely it must have been good for society and for the environment ... oops ...

Why don't we look at the environmental situation in a country where "copious legislation", in fact as copious as it gets, was in force.

And there we find ... chernobyl, in the soviet union.

It seems to me your argument is flawed, both in theory and in practice.

You see, you assume laws are in the intrest of society, which is a standpoint that's idiotic, to say the least. In fact, given the world's current situation, the less laws a society has, the better it does.

Re:lawmakers

[benjamindees]

we create laws specifically to prevent that.

The only thing this law has prevented is papermills from using alternative fuels.

Are you saying you want a type of anarchy

The parent said nothing about anarchy. No need to erect strawmen.

I think copious legislation should be applied

Your "copious" legislation has already been applied. It is demonstrably counterproductive.

Re:lawmakers

[Ashriel]

Doesn't matter. Precedent from the Supreme Court states that the IRS has sovereign immunity and cannot be sued on any issue within it's own domain.

Re:lawmakers

[Volante3192]

Except in our case, the cost of getting the car would exceed the benefit of getting the credit.

What the paper companies have is a benefit of the credit outweighing the initial cost to pull it off.

Re:lawmakers

[CrimsonAvenger]

In the short term the solution for this is for the president to order the IRS to withhold these payouts until congress can close the loophole. If the paper companies sue, they would get laughed at or scolded by the judges as this is an obvious and evil perversion of the intent of the law.

Alas, we live in a nation where rule of law is paramount.

The letter of the law is what the law is, not the "intent" of the law.

Which means it would be illegal to withhold payments specified by law, and any lawsuit challenging such an act would likely succeed, with penalties.

In other words, you're stuck with the law as written until someone changes it. The government trying to game the law by not obeying it is, if anything, worse than some corporation gaming it by taking advantage of something not foreseen by the lawmakers.

After all, if the government can choose to not obey this law that you dislike, what's to prevent them from disobeying a law you like?

Re:lawmakers

[jc42]

If the paper companies sue, they would get laughed at or scolded by the judges as this is an obvious and evil perversion of the intent of the law.

Quite possibly it was written with exactly that intent. We've been often reminded by nearly everyone studying Congress that most proposed laws aren't written by the legislators at all; they're usually written by "consultants" who are part of the lobbying setup and are paid by the corporations interested in the laws. It has come out repeatedly that most members of Congress haven't even read the laws that they vote on. They usually have only read the summaries, which are written for public PR.

So it's quite likely that whoever worked out the exact wording of the law was in the pay of one or more companies who wanted exactly what the story is about. They probably discussed it behind the scenes, until they were fairly sure that the wording would allow their employers to take advantage of the law in this fashion.

It's how things are done. And it's hardly any secret. It's been written about more times than we can probably count.

(Actually, none of this precludes the possibility of a Congressman understanding the issue. The point is that usually they don't bother themselves over such details. That's for their underlings to handle.)

Law from 2005

[Anonymous Coward]

It wasn't mentioned in the summary, but the tax credit was passed in 2005. So no one thinks the $8 billion is related to stimulus packages passed more recently.

No, those will cost us a lot more when companies figure out how to fraud them.

Laws are used as written, not intended

[corsec67]

This is another example where the intention of the law doesn't mean anything, what is actually written and what that can be stretched to mean does.

If a law is supposed to have a specific intention, then it should be written just for that.

Re:Laws are used as written, not intended

[cjfs]

This is another example where the intention of the law doesn't mean anything, what is actually written and what that can be stretched to mean does.

This is rather troublesome. If these situations continue our representatives may be forced to actually read the legislation they're passing.

Re:Laws are used as written, not intended

[amrik98]

This is another example where the intention of the law doesn't mean anything, what is actually written and what that can be stretched to mean does.

This is rather troublesome. If these situations continue our representatives may be forced to actually read the legislation they're passing.

Instead of thinking of the children?

Re:Laws are used as written, not intended

[Anonymous Coward]

The problem has nothing to do with intention. The problem is that the law was very badly written for every purpose. The law gives a $0.50 tax credit for every gallon of diesel mix used but the credit should have been based on some fraction of the price of diesel. The paper makers scam only works because the price of diesel has fallen so much.

Indeed, if diesel and biofuel prices fell far enough we could all make money simply by burning gallons of it in our back yards: spend $0.40 on a gallon of mix; claim $0.50 from the IRS.

If the law had been drafted by someone who wasn't retarded this situation would never have arisen.

Re:Government interfearence screws up everything

[Samschnooks]

Unless something really needs regulating, leave it the hell alone. Food? Fine we need an FDA to make sure our food isn't nasty and contaminated. They probably overstep their usefulness in some cases, and under step it in others, but that's expected.

Unfortunately, industry will stick their noses in when regulations are being written. Wonder why the FDA doesn't have many warning about the mercury in Tuna whereas private consumer groups do?

Let's just say, legally this would be considered hearsay, but it was said that the Tuna industry was literally looking over the FDA'a shoulder when those regs were written.

So, even then, Government is too easily corrupted. Unfortunately, I don't have a better idea.

Re:Government interfearence screws up everything

[mmalove]

"So, even then, Government is too easily corrupted. Unfortunately, I don't have a better idea."

I do. You have to take the law back to principles, rather than specifics. Here's a few many of you are familiar with:

THOU SHALT NOT KILL.
THOU SHALT NOT STEAL.

Therefore, undisclosed mercury in Tuna and defrauding an energy subsidy as a paper mill would be considered BREAKING THE LAW.

While we're at it, I have another recommendation. Since waterboarding is simply "enhanced interrigation", I'd suggest it should be a viable questioning technique for these types of white collar crimes. I have a strange belief system where if someone elses' countrymen are trying to kill me, I can at least see they were raised and taught that way. When my OWN countryman are trying to kill me, they should be punished ten times worse.

Re:Well, folks...

[blahplusplus]

This has nothing to do with central planning, this is clearly a case of abusing the law for gain.

The two are NOT the same.

Nor does is it evidence of your implied counterpoint that in a decentralized economy stupid economic or environmental decisions would not get made, they certainly would.

There's a reason why we have laws in the first place, some days I wonder if anyone certain people on slashdot has read the history of corporate America and the things they used to get away with in a more decentralized economy because there was no authority whatsoever.