My reading of this vaguely written sentence is that lignin is currently being burned. If instead used as a petroleum replacement in plastic-like materials it would not be burned -- at least not until it hits the post consumer trash incinerator.
Is lignin extracted from wood in any other industries besides paper production? Would the paper industry be able to supply enough lignin to replace even a fraction of the plastic currently being produced? Even if it did, sounds like that would simply shift the burning from lignin in the wood fiber to petroleum products.
At the paper mill where I recently worked, the lignin was not burned just for the pleasure of it. The quicky skipping a couple dozen steps process is as follows... The lignin is extracted from the wood pulp by a cocktaail of sodium family chemicals casually referred to as liquor. When loaded with nice potential energy filled lignin, the liquor is referred to as black liquor. The black liquor is piped to the recovery boilers where the lignin burns out leaving nice clean white liquor and a lot of high pressure steam. The white liquor is in closed loop system and goes back to pick up more lignin. The high pressure steam is used on the actual paper machines and drives turbines to provide nearly one hundred percent of the electrical power needed by the entire mill.
Remove the lignin by another process so that it can be used to make 'liquid wood'. Now where will the mill get its high pressure steam? Burning petroleum products just like it does now when there is an upset condition in the supply of black liquor. Lots of natural gas. Lots.