Paper industry subsidies strike home in Nova Scotia and Minnesota

The Sappi Fine Paper mill in Cloquet, 2010. (Credit: Gregory Hanrahan)

The paper industry in Maine is mulling a fight against the reopening of a Nova Scotia paper mill that's been idled since last year, and the dispute has Minnesota and Upper Midwest implications.

The mill in Port Hawkesbury, a few miles from the North Atlantic Ocean, closed in 2011 when operator NewPage went bankrupt.

NewPage had a big presence in Wisconsin, where it closed paper mills in Kimberly and Niagara in 2008. Politicians in Wisconsin blamed subsidized Chinese paper for the decline in the industry.

The latest complaints over subsidies are coming from Maine, where producers are frustrated that the government of Nova Scotia has promised $125 million in incentives to get a Canadian company to reopen the mill at Port Hawkesbury, as reported by the Halifax Chronicle Herald:

Pacific West, the Vancouver-based company that might reopen the mill, is hoping to get breaks on taxes and its electricity bill to drive down costs so it can make money making paper there.

The mill has the capacity to make 360,000 tons of supercalendared -- slightly shiny paper used in inserts and some advertising and magazines -- each year. That would flood the market with new supply at a time when demand for all types of paper is in secular decline.

These are all familiar names in Minnesota. NewPage has a mill in Duluth, Sappi has one in Cloquet, and Verso just closed one in Sartell.

They all make types of paper that compete with the type of paper that would be made at the idled mill in Nova Scotia.

But before anyone gets too upset about the $156 million the provincial government has floated toward the mill, it's important to remember something called the "black liquor" tax credit. Paul Quinn, a forest and wood products analyst at RBC Capital in Vancouver, called the tax credit a "boondoggle" that's transferred $8 billion from U.S. taxpayers to the paper industry.

For instance, Verso has only turned a profit once in the past five years, in 2009, and that was thanks to a $239 million federal tax credit for using the alternative fuel mixture.

Suddenly a $156 million package of incentives in Nova Scotia doesn't seem like such a big deal.