BIOFUELS:

'Black liquor' tax credit restriction rides on health care bill

A measure that could save the federal government $24 billion in biofuel tax credits over 10 years by restricting the eligibility of a controversial fuel was attached last night to health care reform legislation making its way to the House floor this week.

Language included in the manager's amendment would restrict the paper industry from claiming a lucrative incentive for use of a fuel known as "black liquor."

Rep. Chris Van Hollen (D-Md.), a member of the House Democratic leadership, introduced the measure as a stand-alone bill (H.R. 3985) this week that would formally restrict the paper industry from eligibility for the $1.01-per-gallon cellulosic biofuel tax credit included in the 2008 farm bill.

The estimated $24 billion in tax credit savings could be used to offset costs of the health care bill, Van Hollen said.

"In addition to supporting homegrown renewable energy, it is my hope that this legislation will be added to the manager's amendment for the House health care reform package making its way to the floor this week so that the savings generated by these improvements can help pay for health care for all Americans," Van Hollen said in a statement yesterday before the amendment was released.

The health care legislation is expected on the House floor Friday or Saturday.

Last month, news of an Internal Revenue Service memorandum surfaced saying the the paper industry could be eligible for the credit with its wood-pulping byproduct that is burned as fuel to produce electricity for paper mills.

The industry already receives a 50-cent-per-gallon credit for its production of the mixture, black liquor, through a separate credit for alternative fuels mixtures set to expire at the end of this year. Bank of America analysts estimate the industry will receive about $2.5 billion from that credit in 2009.

Industry analysts reported many paper and forest stocks were up sharply after the IRS memo surfaced last month, and some reports pegged the potential windfall for the industry at $25 billion.

But the paper industry remains unconvinced it would benefit from the credit.

"The IRS memo on this subject surfaced only a few weeks ago, and we're still trying to understand what it means and what impact it may or may not have on the industry," said Scott Milburn, a spokesman for the American Forest and Paper Association.

The memo points out that the fuel would have to meet U.S. EPA requirements under the Clean Air Act governing fuels and fuel additives. An EPA spokeswoman said black liquor is not currently registered as an approved fuel.

Van Hollen's measure is not the first attempt to restrict the paper industry from receiving tax incentives through alternative fuel tax credits.

Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), chairman and ranking member of the Senate Finance Committee, introduced a draft proposal this summer that would clarify the types of fuels that qualify for the 50-cent-per-gallon alternative fuels tax credit, eliminating black liquor from eligibility (E&E Daily, June 12).

But that proposal has not been formally introduced.

Van Hollen's legislation would also expand the definition of non-food feedstocks in the existing cellulosic biofuel tax credit to include cultivated algae, cyanobacteria and lemna. It would also proportionally correlate the value of the $1.01 credit with the energy content of the fuel produced, measured in British thermal units.

The advanced biofuels industry welcomed the news of the bill.

"The legislation introduced ... sets a new paradigm in encouraging the development of performance-based biofuels," Michael McAdams, president of the Advanced Biofuels Association, said in a statement. "Both the technology-neutral inclusion of algae-based fuels into the cellulosic credit as well as Congressman Van Hollen's suggestion to include BTU-based tax credits are welcome additions to the current code."

Senior reporter Ben Geman contributed.

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