UPDATE:US Lawmakers Eye Health Bill To Shut Paper Co Tax Break

House lawmakers may have found an additional $24 billion to help offset the cost of their health-care bill, by blocking pulp and paper makers from using a tax credit for biofuels.

Legislation introduced Tuesday by Rep. Chris Van Hollen, (D., Md.), would prevent companies such as International Paper Co. (IP) and Weyerhaeuser Co. (WY) from claiming a $1.01-per-gallon tax credit for the production of cellulosic biofuels.

"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 press release.

Paper companies already have reaped billions in federal payments this year by claiming an alternative-fuels credit for recycling black liquor, a by-product of the paper-making process.

The alternative-fuels credit expires at the end of this year, and lawmakers have vowed to ensure that if it is renewed, it will be narrowed so that black liquor isn't eligible.

But paper companies have been eyeing a separate credit, for biofuels made from cellulosic feedstocks, that industry analysts have said could yield billions over the next several years.

The provision from Van Hollen would disqualify biofuels that contained certain amounts of water and ash, designed to prevent biofuels from the pulp and paper industry from being eligible.

Besides shutting down the paper tax credit, the bill would expand eligibility for the credit to fuels made from "cultivated algae, cyanobacteria, or lemna."

Most of the $1.055 trillion, 10-year cost of the House health bill is offset by cuts in federal health spending and a surtax on incomes above $500,000. But the revenue raised by closing down the paper tax credit would help lawmakers keep the bill deficit-neutral as they make last-minute changes to the package.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; martin.vaughan@dowjones.com