How Much Green In `Green' Paper?

Not long ago, a big point of pride for U.S. papermakers was the sparkling-white quality of their office papers, which reap 25% of the industry's revenues and a disproportionate share of its profits. So look at what's happening now: This fall, Hammermill Papers will roll out a light-tan copier paper it calls "earth white." Georgia-Pacific Corp. will introduce "coastal white," a sandstone writing paper. They'll compete with Eureka!, a nearly white paper that James River Corp. trotted out last year. All three have two things in common: To varying degrees, they're made of recycled fibers. And they're aimed at a rapidly expanding niche in the $131 billion U.S. paper market. "Every company out there is offering a printing and writing paper with some recycled content," says Red Cavaney, president of the American Forest & Paper Assn., a Washington trade group.

Most papermakers have come to this decision reluctantly. The industry is hurting after major expansions in the '80s that led to overcapacity and lower prices. It would rather make office paper the old-fashioned way--using wood from its vast timber holdings--than spend billions on recycling equipment.

TOXIC BLEACH. But customers are demanding more recycling so less paper goes to landfills. And pressure is mounting on the industry, now No.3 in toxic emissions behind makers of chemicals and primary metals, to use less of the chlorine that bleaches paper white and gives off poisonous dioxins. President Clinton is readying an executive order that would make federal agencies buy writing paper with at least 20% recycled fibers by the end of 1994. And the Environmental Protection Agency is expected to publish draft rules this fall clamping down on the mills' toxic discharges.

Making high-quality office products of recycled material remains the last great technical problem for papermakers, which for 20 years have made cardboard, tissue, and newsprint that way (chart). The challenge with office paper is to remove the ink from once-printed paper so the recycled version will be lily-white. But that's nearly impossible. The next best solution is to chemically separate ink from paper fibers using a flotation process, then mix the grayish recycled pulp with bleached pulp made from wood. Producers can buy recycled pulp, but that leaves them dependent on outside suppliers. So those who can afford to are investing in de-inking equipment. The drawback is cost.

Union Camp Corp. plans to spend $100 million over the next two years at its Franklin (Va.) plant to turn 400 tons of office paper a day into recycled pulp. International Paper Co., Hammermill's parent, has bought exclusive North American rights to de-inking technology owned by Germany's Steinbeis Temming Papier & Co. and has pumped $95 million into its Lock Haven (Pa.) mill to make 100% recycled copier paper. The company also plans to spend $300 million by 1995 at its plant in Selma, Ala., to de-ink and recycle 400 tons of paper a day. "Companies with strong balance sheets are moving into this area," says Evadna Lynn, a paper-industry analyst with Dean Witter Reynolds Inc. "Those with leveraged-up balance sheets"--she mentions Georgia-Pacific Corp.--"don't want to spend right now."

The laggards risk losing out on major orders. Big paper buyers, seeking to bolster their images with customers, are banding into groups such as the Recycled Paper Coalition on the West Coast. Last year, its eight members bought 18,500 tons of recycled paper with up to 20% reused fibers. This year, the group has grown to 68 members, including Bank of America, The Gap, and Bechtel Group. In August, the Environmental Defense Fund forged an alliance that will harness the $1 billion annual paper-purchasing power of six companies, including McDonald's, NationsBank, and Time Warner, to demand more recycled fibers in paper. This follows last year's decision by seven Great Lakes state governments to form a cooperative to buy 14,000 tons of recycled copier paper annually.

Weak paper profits are impeding these efforts. The Forest & Paper Assn. says that using 10% recycled fibers costs 10% more than using pulp from wood, an unpleasant prospect with paper prices at rock bottom. Uncoated copier paper has plummeted from roughly $1,020 per ton in 1990 to $670 today. "I've been in the business 34 years, and I've never seen it this bad," says Thomas C. Norris, president of P.H. Glatfelter Co. in Spring Grove, Pa., which makes high-grade business and specialty papers.

CLEANING UP. Still, the writing is on the wall: Probably by the year 2000, the use of chlorine in papermaking will be severely restricted. Since being fined $3 million by the EPA in 1992 for toxic emissions, Louisiana-Pacific Corp. has invested $100 million at its Samoa (Calif.) pulp mill to bleach wood fibers using a more environmentally friendly chemical--hydrogen peroxide. And experts say other companies will have to do likewise to placate the EPA. That won't be easy for every producer--hydrogen peroxide apparently doesn't work well on Southern wood. But the EPA is doing a major review of regulations that govern emissions from paper mills, and the industry anticipates more stringent standards that it estimates will cost $6 billion to $10 billion to implement by 1998.

The switch to environmentally correct office paper has just begun. The Forest & Paper Assn. figures that in 1990, the most recent year for which it has figures, just 6.4% of the fibers used in office paper were recycled. That may partly reflect the premium of up to 10% such paper commands. Still, demand is picking up: The association sees the recycled content of office paper rising to 10% by 1995. To hasten that trend, EPA Administrator Carol M. Browner is urging the BUSINESS WEEK 1000 companies to recycle their share of the 80 million tons of office paper that America throws away each year. Once that happens, paper buyers will have to decide whether their desire to be green is stronger than their preference for white.