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February 13th, 2008 NIGEL JAQUISS | News Stories
 

Beaten to the Pulp

The Blue Heron Paper Company is a local model of sustainability—but it’s struggling to survive.

     
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There may be no local company that strives harder to embrace sustainable business practices than the Blue Heron Paper Company.

Blue Heron, located just downstream from Willamette Falls in Oregon City, is one the state’s largest recyclers. Every day, the company takes 500 tons of scrap paper—equivalent to a stack of WW s seven miles high—and refashions it into fresh newsprint and paper bags.

The mill, which celebrates its 100th anniversary this year, recently invested $12 million to slash its energy use and has made strides in cleaning up the river water it uses to turn scrap paper into new product. In 2006, the mill’s 250 employees purchased Blue Heron, adding the company to the dwindling ranks of locally owned manufacturers.

“Blue Heron is a company that has gone above the call of duty to do whatever they can to be ‘green,’” says Mike Burnett, director of the Portland-based Climate Trust.

Burnett says Blue Heron’s recent energy conservation investment is the equivalent of taking 75,000 cars off the roads annually.

One of the premises of the sustainability movement is that such practices enable companies to outperform competitors who are less green. Despite all the steps it has taken to run a sustainable company, however, Blue Heron may be an endangered species.

Last year, though, difficult business conditions forced Blue Heron to shut down a sister mill in California. The same challenges that killed that facility now threaten the Oregon City operation. The reason: a complex combination of local recycling policies, the vagaries of global trade, and the decline of the newspaper business.

“We’re trying to find cost-effective measures to stay in business,” says Craig Fletcher, Blue Heron’s manager of fiber supply. “Our survival depends on it.”

Blue Heron’s struggle is a cautionary tale for the entire region at a time when local policy makers and business leaders alike are racing to make Oregon sustainability central.

Scrap paper—Blue Heron’s lifeblood—used to be the stuff of Boy Scout fundraisers and feel-good recycling tubs. Today, it’s a highly sought-after global commodity. And in the highly competitive paper marketplace, Blue Heron’s sustainable values and intensely local focus may not be enough to compete with voracious Chinese mills.

Steve Apotheker is both a factor in Blue Heron’s success and part of its problem.

Apotheker, 55, is a senior recycling planner for Metro, the regional government agency that oversees solid waste policies for Multnomah, Clackamas and Washington counties.

Apotheker is one of the reasons the trade publication BioCycle consistently ranks Oregon tops in the country in recycling in its annual “State of Garbage in America” survey. (Oregonians recycled 45.8 percent of their garbage in the most recent survey; the national average was 28.5 percent).

Oregon passed aggressive recycling laws early on, and Metro has relentlessly built upon that foundation. The agency’s recycling hotline, for example, fields more than 100,000 calls annually, and Metro has pioneered programs to reuse and recycle everything from food to paint to construction debris.

“Metro is recognized as a national leader,” says Jerry Powell of Portland-based Resource Recycling magazine.

Keeping usable material out of landfills is Apotheker’s life’s work—and his passion. He’s one of those guys who used to get off planes with a backpack full of empty cans in the days before airlines recycled.

After earning a master’s degree in astrophysics at the University of Illinois in 1978, Apotheker ran a community recycling program for 10 years. Soon after getting into recycling in Illinois, Apotheker traveled to Oregon for one of the first recycling conferences, which was held in Seaside in 1981.

“I slept on a beach in the pouring rain because I couldn’t afford a hotel room,” he recalls. “For the first time, I saw trucks that were designed specifically for recycling. I thought I’d died and gone to heaven.”

In 1983, Oregon passed the first of two landmark laws that institutionalized recycling.

Six years later, in order to take advantage of the growing recycling movement, Blue Heron invested millions to convert its mill from a reliance on wood pulp, its traditional raw material, to scrap paper.

Throughout the ’90s, Blue Heron enjoyed access to a cheap, clean stream of waste paper. And for years, the mill operated without significant competition, turning scrap into newsprint for the thriving newspapers up and down the West Coast.

The good times would not last forever. A major change occurred in 1999, when Apotheker, who had joined Metro a year earlier, and his colleagues changed a policy and introduced “commingling.”

Up to that point, residents in the Portland metropolitan area played a much more active role in the recycling process than they do today. Cardboard had to be folded and tied and kept separate from newspapers. Tin cans had to be put in a separate container, as did glass and plastic.

Apotheker and his colleagues figured that if Metro could reduce the hassle of sorting at the residential level, people would be more likely to recycle. So, in 1999, residents were told to just put everything except glass in the same tub. Massive warehouses called “materials recovery facilities,” or MRFs, would handle the sorting.

“Of course, our ultimate goal was to increase the recycling rate,” Apotheker says.

The policy worked. The recycling rate in the Metro region, according to the Oregon Department of Environmental Quality, was 43 percent in 1999. By 2001, it had jumped to 49 percent, which was the biggest two-year increase since the state began keeping records. (In 2006, the Metro rate was 55.5 percent.)

Metro was happy with the increase, but for Blue Heron, commingling has been a nightmare.

Blue Heron’s Fletcher, 51, has learned the hard way residents did a far superior job of sorting than do materials recovery facilities.

Today, when scrap paper arrives at Blue Heron’s mill, workers dump it into a 60-foot tube that looks like a supine NASA space rocket.

Inside the tube, called a drum pulper, the scrap is mixed with water and a detergent to remove ink. The drum spins, and heavier, non-paper material falls to one end, where it is caught like dryer lint and expelled.

Since commingling began, the scrap Blue Heron receives contains far more glass, plastic, metal and non-fiber than before.

“A quarter of a percent ‘outthrows’ [non-paper material] was the industry standard in the ’90s,” Fletcher says. “Now a mill in this region is lucky if they get less than 5 percent outthrows.”

Put simply, mills saw as much as a 20-fold increase in the amount of glass, metal, plastic and other junk that came into their facilities.

“Blue Heron is getting lower-quality product,” says Fletcher. “The paper stream is so dirty we can’t use as much as we’d want.”

The decline in quality has real economic consequences, both because Blue Heron is paying for scrap that it can’t use and because it then has to pay to dump the glass, plastic and metal, which is unusable after coming out of the drum pulper.

Based on Blue Heron’s consumption of 500 tons per day, the mill is paying for and then paying to throw away nearly 10,000 tons of unusable trash annually.

At current scrap prices of more than $100 per ton and current landfill rates of about $25 per ton, the extra junk in the scrap stream is costing Blue Heron about $1.25 million annually. (Fletcher won’t give an exact number, saying only it’s “more than a million.”).

“The MRFs are sending us stuff that’s not clean, based on Metro’s policy,” Fletcher says. “That policy [having the MRFs do the sorting] doesn’t work, so we’re sending a lot of stuff right back to the landfill.”

As employee-owners, Fletcher’s colleagues feel every penny of extra cost. Blue Heron does not disclose financial information, but its previous owner, the buyout firm KPS Capital Partners, pegs the mill’s annual revenues at about $130 million.

Fletcher, who joined Blue Heron in 2001 after the mill he worked at in Tacoma closed, acknowledges his equity stake is precarious. “There are a lot of sleepless nights,” he says.

Apotheker concedes the paper stream has gotten dirtier because of commingling and that Metro’s policy has harmed Blue Heron. “We’re trying to optimize the MRFs and work with them to do a better job of sorting,” he says.

Metro Council President David Bragdon says he was unaware of commingling’s negative effects on the company.

“The goal of commingling is to make it easier for individuals to recycle. It seems to have achieved that,” Bragdon says. “But it was not our intention to have Blue Heron bear the burden. That is something I’ll look into.”

For Blue Heron, the situation is unlikely to improve anytime soon. This summer, Metro will replace ubiquitous 14-gallon recycling tubs with 65-gallon rolling carts. Residents can then get more material to the curb more easily, although they will still have to segregate glass.

“We need to increase recycling by 18,000 tons by 2009, and we think carts will help us meet that goal,” says Apotheker.

Fletcher is all for recycling, but he says, “The carts will make matters worse.”

Then again, dirty waste paper may be the least of Blue Heron’s worries.

China’s paper industry is exploding—and that growth is a major threat to Blue Heron.

Pete Grogan, who works for Weyerhaeuser’s recycling division and who travels to China frequently, offers some indicators.

“In 1994, the Chinese manufactured 28 million tons of paper,” Grogan says. “In 2006, they made 70 million.”

China is on track to overtake the U.S—where paper production peaked in 1999 at 105 million tons—as the world’s largest paper manufacturer.

Part of the reason is the increased demand for packaging materials for the products China exports. Internal demand has skyrocketed as well.

“Fifteen years ago, there were about 70 newspapers there,” Grogan says. “Now there are 2,000, and from almost nothing, today you have 9,000 magazines.” And China’s demand is likely to grow, given that per-capita paper consumption in China is still a small fraction of U.S. consumption.

In 2005, the most recent year for which the United Nations recorded statistics, paper consumption in the United States was 653 pounds per person. In China, per-capita usage was only 90 pounds.

To respond to this demand, the Chinese have built dozens of state-of-the art mills in the past 10 years, most geared to run on recycled paper. Their mills produce paper much more efficiently than Blue Heron’s primary paper-making machine, which is 80 years old.

Chinese mills run on scrap paper by necessity. Although U.N. figures show that China comprises 20 percent of the world’s population, it contains only about 4 percent of the world’s forests.

So Blue Heron must increasingly compete with Chinese mills for scrap paper. One might think Blue Heron would have an edge over China in buying old newspapers from West Coast suppliers, simply because of proximity. Not so.

When Chinese manufacturers export goods to the U.S., they do so primarily in large steel shipping containers stacked like bricks on high-speed ships.

The U.S., however, exports relatively little to China. So empty shipping containers pile up on West Coast docks. And shipping companies are willing to charge almost nothing to anyone who wants to send products to China.

Blue Heron’s Fletcher says that for much of 2007, for instance, shippers could move a container of scrap paper from Portland to China, a voyage of nearly 6,000 miles, for about $300. The cost for Blue Heron to bring that same container from Medford, which is only 220 miles away? About $500.

There was a time when Blue Heron could find all the scrap it needed locally, but with the Chinese vacuuming paper off the West Coast, Fletcher now sometimes buys paper from as far away as Chicago.

Some observers feel frustrated at how easily Chinese buyers can enjoy the benefits of a U.S. recycling system that took decades to create.

“China is mining North America’s urban forest and getting away with it because of the value of the dollar and the cheap cost of the containers,” says Resource Recycling ’s Powell.

Because Chinese demand is so strong, Chinese mills have pushed the price of recycled paper on the West Coast ever higher. (The price of “old newspaper,” or ONP, is currently about $120 per ton on the West Coast, about twice what it was in 2001).

And Weyerhaeuser’s Grogan notes that because labor is so cheap in China, mills there can sort out the glass, metal and plastic that Blue Heron pays millions to dump and sell those byproducts at a profit.

That competition has already cost Blue Heron dearly. Last year, the company was forced to close a California mill that it had only just purchased in 2005 in an effort to get closer to that state’s newspaper market.

Blue Heron CEO Mike Siebers told the San Bernardino Sun last March that the California mill just could not buy waste paper economically.

“The lion’s share of it is going overseas to China—they are willing to pay so much more for it,” Siebers said. “We can’t compete.”

Blue Heron isn’t the only local mill suffering. On Jan. 4, NorPac Resources Inc., a scrap paper mill in Longview, Wash., informed California buyers it could no longer comply with a state law there requiring that newsprint contain 40 percent scrap.

“The [scrap] market has changed significantly in the last year,” wrote Robert Larner, NorPac’s manager of newsprint sales. “Most of this change has been driven by the export of [scrap] offshore, mainly to China.”

Blue Heron’s other problem is that print newspaper readers are disappearing nearly as fast as spotted owls.

Although Blue Heron also makes paper bags for fast-food restaurants, as well as a paper product called “reBrite,” which is used for ad supplements, by far its largest-selling product—about half of what it makes—is newsprint, which, as its name suggests, is used to make newspapers. (WW is printed on Blue Heron newspaper.)

The reasons for the well-chronicled decline in newspaper readership are many: consumers’ increased reliance on television and the Internet—and lousy journalism, perhaps.

Like Metro’s decision to move even further toward commingling, or the low cost of shipping freight to China, the erosion of newspaper readership is not something Blue Heron can influence. Many other U.S. mills have already closed.

“Twenty-three percent of the North American newsprint-making capacity has gone away,” says Powell. “The domestic newsprint industry is already in jeopardy.”

Blue Heron is coming to grips with exactly what “sustainability” means. In December, the company lost a lawsuit filed by Willamette Riverkeeper, which was unhappy with the cleanliness of the water it discharges into the Willamette River. Blue Heron says it has reduced wastewater discharge by 30 percent in the past seven years, and Blue Heron’s lawyers say immediate compliance “will likely bankrupt the company and put it out of business.”

Although they’ve long battled Blue Heron on water-quality issues, enviros say Blue Heron’s approach has improved—and they acknowledge the company faces regulations and other costs that its competitors do not.

“You have to empathize with a local, employee-owned recycler that is getting undercut by foreign competitors who don’t face the same labor and environmental costs,” says Riverkeeper’s Travis Williams.

Metro’s Apotheker concurs. There’s a difference, he says, between being “green,” like any community’s recycling program, and being “sustainable” in a systemic way, which he fears the global paper trade is not.

“Scrap paper is going to China in part because they have cheap labor that can separate the glass, plastic and metal,” he says. “I don’t think that cheap labor is sustainable in the long run.”

Apotheker also worries the U.S. is surrendering control of valuable resources and putting companies such as Blue Heron at risk by not putting any restrictions on free trade.

“We ought to be asking questions about whether the Chinese pay people a living wage and are taking care of the environment,” he says.

Such concerns are well-intentioned but will not do much to help Blue Heron compete.

“We’re trying all kinds of ways to do things better,” says Fletcher, who worries whether he can put his two sons through college. “But in the meantime, we’re losing the game.”


Blue Heron gets its electricity from Portland General Electric and was a strong industrial supporter of a public purchase of PGE.

Oregon’s recycling boom began with Senate Bill 405 in 1983. That bill required every city in the state with a population over 4,000 to provide recycling services.

Two years ago, CEO Mike Siebers pegged Blue Heron’s annual payroll at $15 million and estimated the mill and its employees put $75 million into the local economy.

In 2006, Blue Heron got $5.9 million from the Energy and Climate Trusts, $4.5 million in state loans and $2.8 million in state tax credits to make energy-saving investments.

The Pacific Maritime Association, a trade group, says 15.3 million shipping containers passed through ports on the West Coast last year. About 70 percent of those containers left U.S. ports empty.

 
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