AF&PA On the Issues. March afandpa.org

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1 March 2018 The forest products industry employs more than 900,000 men and women and is built on principles of sustainability: producing recyclable products from a renewable resource. We are among the top 10 manufacturing sector employers in 45 states. American Forest & Paper Association (AF&PA) members make essential paper and wood-based products that are used daily by people across the country and around the world products that play an important role in literacy, education, hygiene, food safety, product marketing and protection and home and office construction. We support market-based policies and regulations that foster economic growth, job creation and international competitiveness in this vital sector. We believe public policies are most effective when they meet the economic needs, environmental concerns and societal expectations of our diverse communities. AIR PERMITTING PROBLEMS AND SOLUTIONS Every five years, EPA must decide whether the National Ambient Air Quality Standards (NAAQS) are sufficiently protective of public health. With NAAQS having dropped closer to background levels, good economic and environmental projects are falling off the drawing board because they won t qualify for a permit. To prevent further ratcheting, EPA should not lower standards further until current standards are fully implemented and met as air quality will continue to improve under current programs. The decline of permit submittals to states is a strong indication of this growing problem. Additionally, EPA needs to assess how it can reduce the number of projects that need to go through the six to 18 month New Source Review (NSR) process for new or updated facilities and use more realistic modeling assumptions and tools for those projects subject to Prevention of Significant Deterioration (PSD).. The inability to permit a project hurts the competitiveness of the facility, harms product development and innovation and can thwart environmentally-beneficial projects. Local communities will miss out on new jobs and economic growth, while industry sectors face the risk of becoming uncompetitive in the global marketplace of forest products. BIOMASS FOR RENEWABLE ENERGY The forest products industry is the nation s leading producer and user of carbon-neutral renewable biomass energy. Woody biomass is an essential raw material for value-added forest products, such as paper, packaging, wood products, wood-based chemicals and other innovative woodbased products. Paper and wood products manufacturing facilities account for 62 percent of the renewable biomass energy consumed by all manufacturing sectors, most of which is derived from manufacturing residuals. This process is among the most efficient in the world, using materials that could otherwise go unused to create both thermal and electrical energy, commonly referred to as combined heat and power (or cogeneration) technology.

2 P. 2 Studies show that per ton of wood used, the forest products industry sustains nine times as many total jobs as the biomass energy sector. Accordingly, it is important for federal renewable energy policies should not require forest products manufacturing facilities to compete on an uneven playing field with their power suppliers and other energy producers for biomass fiber. AF&PA believes market forces, not government mandates and incentives, should determine the use of wood and wood residuals for renewable energy. CARBON NEUTRALITY OF BIOMASS ENERGY Paper and wood products mills use biomass residuals from their manufacturing operations to generate bioenergy. The energy is used to make products and it provides significant greenhouse gas reduction benefits to the environment. Congress adopted legislation in May 2017 directing agencies to provide recognition of the carbon neutrality of forest-derived bioenergy. AF&PA urges agencies to move quickly to implement the legislative directive. The forest products industry is the largest producer and user of bioenergy of any industrial sector and has long-standing operations in the U.S. The creation and use of biomass energy in forest products mills is integral and incidental to the manufacture of products such as pulp, paper, packaging, tissue and wood products. Pulp mills, integrated pulp and paper mills and wood products mills convert biomass residuals to energy while manufacturing biobased products that are useful to society. This sustainable use of forest products manufacturing residuals for energy provides enormous greenhouse gas benefits by avoiding the emission of about 181 million metric tons of CO2 equivalent. This is equivalent to the emissions of about 35 million cars. ENERGY Energy cost savings and the use of renewable energy are fundamental energy management objectives of pulp, paper, packaging, tissue and wood products manufacturers. The industry is a leader in the generation and use of renewable energy and highly-efficient combined heat and power (CHP), or cogeneration technology. Pulp, paper, packaging and wood products facilities account for 62 percent of the renewable biomass energy consumed by all manufacturing sector facilities. Pulp, paper, packaging and wood products mills produce 33 percent of the CHP electricity generated by manufacturing facilities. In fact, 97.6 percent of electricity produced by the industry is CHP-generated. However, provisions of the Public Utility Regulatory Policies Act of 1978 (PURPA) are still needed to ensure equitable treatment of industry CHP units. While the industry is a leader in the use of renewable biomass for energy, it is also concerned about the new demands being imposed on the resource from market-distorting government mandates and incentives. When government policies increase demand for forest-based renewable energy, they should be coupled with policies to increase biomass supply.

3 P. 3 EPA AIR REGULATIONS The paper and wood products manufacturing sector has met many costly regulatory challenges over the years, spending billions of dollars as part of its environmental stewardship. Many of those investments have led to major improvements in air quality, including a 29 percent reduction in emissions of nitrogen oxide and 53 percent for sulfur dioxide by our pulp and paper facilities since Unfortunately, the constant rewriting of existing regulations and imposition of new regulations often driven by lawsuits under the Clean Air Act could impose more than $10 billion in new capital obligations on the industry over the next 10 years. The cumulative burden being imposed on our business is unsustainable. GHG REGULATION Between 2005 and 2014, AF&PA members reduced their greenhouse gas (GHG) emissions by 16 percent, surpassing our Better Practices, Better Planet 2020 goal of 15 percent reduction. In 2017, wanting to further improve their performance, members launched a new goal to achieve a 20 percent reduction of GHG emissions by 2020 from the 2005 baseline. U.S. fossil fuel and industrial process emissions declined 12 percent between 2007 and 2015, largely due to market driven and voluntary reductions such as improved energy efficiency and shifts from coal to natural gas by the electric utility sector. During that same period, global emissions increased by 13 percent, and China s rose 42 percent, according to data compiled by the European Commission. Policymakers should reassess the need for GHG regulations in light of ongoing, market-driven GHG reductions, and any regulations should ensure least cost compliance and electricity reliability. At the forefront of federal GHG regulations is the Clean Power Plan (CPP). In February 2016, the CPP was stayed by the Supreme Court. The stay removes the states obligation to submit compliance plans to EPA until after litigation is resolved. ILLEGAL LOGGING AF&PA is a strong proponent of international efforts to suppress illegal logging. Trade in illegallysourced fiber is a serious detriment to the industry s sustainability, the environment and the global economy. An AF&PA-commissioned study prepared in advance of the 2008 Lacey Act amendments estimated that illegal logging costs the U.S. forest products industry some $1 billion annually in lost export opportunities and depressed U.S. wood prices. The 2008 Lacey Act amendments make it illegal to trade plants and plant products including wood, pulp and paper harvested or traded in violation of the laws of a foreign country. The Lacey Act also requires importers to file a declaration naming the country of harvest and the genus and species of plants contained in the products, although the declaration requirement has yet to be phased in for composite wood products or for pulp and paper.

4 P. 4 AF&PA works with a broad consensus coalition of businesses, conservation groups and labor organizations that supports full implementation of the law. AF&PA supports adequate funding for the implementation of the Lacey Act and the appropriate phase-in of the declaration requirement to imports of composite wood products and pulp and paper. INTERNATIONAL TRADE AND COMPETITIVENESS Paper and wood products exports account for about 15 percent of the industry s annual total sales. In 2017, the industry s global exports totaled $30.9 billion, of which $9.5 billion were exports of wood products and $21.4 billion were exports of pulp, paper and packaging. We estimate that our industry s exports support approximately 135,000 jobs at pulp, paper and wood products mills and related logging operations in the U.S., as well as many more jobs in communities where these facilities are located. More than 75 percent of U.S. pulp and paper mills are located in counties designated by the Census Bureau as more than 80 percent rural. AF&PA supports trade policies that advance our industry s strong global market position. In an increasingly globalized market, it is critical for the U.S. paper and wood products manufacturing industry to achieve unrestricted access to international markets and level the playing field among international competitors by eliminating both tariff and non-tariff barriers. During the past decade, many countries have negotiated bilateral and multilateral trade agreements to provide access for their producers in export markets. U.S. producers of goods and services risk falling behind without an aggressive effort of foreign market opening. We support the negotiation of trade agreements that result in commercial benefits for American companies by reducing tariffs and traditional non-tariff barriers. Our industry supports the NAFTA because it gave us duty-free access to the Canadian and Mexican markets. As policymakers weigh potential changes to NAFTA, we want to ensure that these markets continue to be open to our industry s exports and recognize the benefits of our interconnected supply chain. We also support new rules and stronger disciplines in areas such as customs administration, intellectual property protection and the role of state owned enterprises. PAPER RECYCLING A record 67.2 percent of paper consumed in the U.S. was recovered for recycling in 2016 and the annual paper recovery rate in the U.S. has doubled since By weight, more paper is recovered from municipal solid waste streams than glass, plastic, and aluminum combined, according to EPA. Recovering paper extends the useful life of fiber and saves valuable landfill space. Paper recycling is widely accessible, with 96 percent of Americans having access to community curbside and/or drop-off paper recycling programs. The existing voluntary, marketbased paper recovery system fuels innovation, creates lasting infrastructure and enables us to make new products from paper that is diverted from the waste stream.

5 P. 5 POSTAL REFORM The U.S. Postal Service (USPS) is the essential component of a $1.4 trillion mailing industry that employs about 7.5 million Americans through which small and large businesses, nonprofit organizations and consumers can transact business, advertise services and distribute products. Approximately 39 percent (nearly $6.5 billion worth) of communications papers produced in the U.S. are delivered through the mail system. USPS faces financial insolvency, even though they have implemented cost-cutting measures. Without action from Congress to address the fundamental underlying problems and to provide the flexibility to create new revenue streams, the Postal Service cannot be financially solvent. As a part of its required 10-year review, the Postal Regulatory Commission concluded that the current rate system does not meet the objectives established by Congress, and has exercised its authority to propose modifications of the system or adopt an alternative system to achieve the objectives through a Notice of Proposed Rulemaking that, if implemented, would substantially change the current inflation-based rate cap system and increase customer costs. AF&PA opposes the proposal. Raising rates while reducing services is counterproductive in an economy where industry and consumers are seeking faster and cheaper delivery options for communications and business transactions. These actions would simply make mail less competitive and further accelerate volume and revenue losses. AF&PA supports legislative measures that ensure the fiscal viability of the USPS by eliminating unreasonably imposed financial obligations to the Postal Service; allows the Postal Service to innovate and develop new revenue sources; support service standards that meet the needs of the public and business customers, including continued six day mail delivery; ensures postal rate setting has checks and balances that provide price predictability for mailers and cost-control incentives for USPS; and enable mail as a cost competitive option for business communications. PROMOTING ACCESS TO PAPER OPTIONS FOR GOVERNMENT PROGRAMS AF&PA believes the public should be able to choose the manner in which they receive information and services from the government and not be forced into a digital-only delivery option. Paper and digital formats work together to deliver information to consumers and citizens. In the private sector, many companies use both forms of information delivery to reach the greatest number of people in the most effective way. People who wish to receive paper-based communications and documentation should not be forced to either use digital delivery or forgo the information or service. Federal agencies should not eliminate a paper option without a cost-benefit analysis, but should provide adequate public notice to people affected by a proposed elimination of paper options, allowing ample opportunity to provide input and taking public comments into account before making a final decision. Federal agencies proposing the elimination of paper options must

6 P. 6 ensure safeguards are put into place to protect personal information from identity theft or fraud before requiring a digital-only option. The government s rush to digitize is shortsighted, leaving many people without a viable option. In January 2017, the Social Security Administration (SSA) suspended mailing paper statements to citizens under the age of 60 without any public input. Such policies discriminate against millions of Americans, many of whom are in rural communities and/or low income households 45 percent of seniors do not own a computer and 30 percent of citizens do not have online access at home. FEDERAL PROCUREMENT POLICIES AF&PA opposes recycled content mandates as an ineffective path to increasing paper recovery. Additionally, the distinction between pre- and post-consumer content constrains the amount of recovered fiber available for recycling and should not be used in government policies. A Proposed Rule was issued in January 2017 by the Department of Defense, the General Services Administration and the National Aeronautics and Space Administration that would amend the Federal Acquisition Regulations (FAR). The FAR requires government procurement of products that meet or exceed environmentally preferable recommendations made by EPA. While well-intentioned, the procurement policies would lead to negative economic and environmental consequences, including: Fewer (not more) producers of recycled-content printing paper; Forcing recovered fiber to uneconomical end uses, which in turn will have negative ripple effects on the economics of the broader market-based recovery system; A product selection process that adds unnecessary costs and ignores all credible labeling systems. Mandating post-consumer recycled content for fiber-based products creates the misleading perception that certain types of recovered fiber are better than others. Not all types of recovered fiber are suitable for recycling into communications papers and available post-consumer sources of recovered fiber are declining. Rather than arbitrarily mandating 100 percent recovered content in communications papers, EPA should take a more measured approach that accounts for all of the environmental and economic consequences that mandates impose. The aim should be to increase paper recovery. SUSTAINABILITY AF&PA s comprehensive sustainability initiative Better Practices, Better Planet 2020 includes six measurable goals focusing on paper recovery for recycling, energy efficiency, greenhouse gas emissions, sustainable forestry practices, workplace safety and water use. Our members have long been good stewards of our planet s resources, and this initiative shows our proactive approach to the long-term success of our industry, our communities and our environment. We have made

7 P. 7 great strides towards reaching the Better Practices, Better Planet 2020 goals, surpassing those for greenhouse gas emissions and workplace safety ahead of schedule. TAX Paper and wood product manufacturers commend Congress and the administration for adopting comprehensive tax reform that encourages economic growth, job creation and the competitiveness of all U.S. businesses. Central to the new tax system is a low corporate tax rate, support for investment in U.S. manufacturing and its global supply chain and an international tax system that reflects a globally competitive territorial tax system. The U.S. forest products industry made up of both C-corporations and pass-through entities is a significant contributor to the U.S. economy, employing nearly 900,000 men and women in above-average wage jobs, investing heavily in equipment and improvements and exporting products throughout the world. The industry produces more than $200 billion in paper and wood products annually and accounts for approximately four percent of the total U.S. manufacturing GDP. We are highly capital-intensive and have made significant investments and facility upgrades in recent years to continue technological advancement and compete in an extremely competitive global marketplace. As the Internal Revenue Service and Department of Treasury begin implementation of tax reform, AF&PA will focus on appropriate rules related to expensing of capital equipment, interest expense, research and development and international tax policies. TRANSPORTATION AF&PA advocates for investments and policies that will ease congestion on roads and create safer, stronger highways. We support updating the antiquated weight limits on the interstate so that truck traffic can be reduced in a safe and efficient manner. An increase in the maximum allowable weight of six-axle semi-trailers is an effective and safe way to increase truck productivity and America s freight capacity. Technology improvements and stronger roads and bridges make it safe for each truck to carry more freight. It would also mitigate the current transportation capacity shortage that inhibits moving raw materials to mills and products to customers. Rail customers are not receiving reliable rail service at reasonable rates. Nearly one-third of forest products facilities have access to only one rail carrier. The railroad industry has an obligation to serve its customers and the nation s freight rail needs, but many see their monopoly status as an opportunity to charge excessive rates while providing poor service. The American Forest & Paper Association (AF&PA) serves to advance a sustainable U.S. pulp, paper, packaging, tissue and wood products manufacturing industry through fact-based public policy and marketplace advocacy. AF&PA member companies make products essential for everyday life from renewable and recyclable resources and are committed to continuous improvement through the industry s sustainability initiative - Better Practices, Better Planet The forest products industry accounts for approximately four percent of the total U.S. manufacturing GDP, manufactures over $200 billion in products annually, and employs approximately 900,000 men and women. The industry meets a payroll of approximately $50 billion annually and is among the top 10 manufacturing sector employers in 45 states.