A controversial tax credit for paper mills would be eliminated as part of a health care bill proposed by President Barack Obama.

Elimination of the credit, available to mills burning black liquor mixed with diesel fuel, would save the government an estimated $24 billion annually and be used to help offset the cost of providing health care enhancements. Currently, more than 46 million Americans are without health insurance.

Meanwhile, some U.S. senators have proposed rescinding the tax credit for mills to help a jobs creation proposal.

At issue is a 2005 law that provided a 50 cent per gallon tax credit for blending taxable fuels such as gasoline or diesel with an alternative fuel such as biodiesel or ethanol. The intent was to encourage more production of alternative fuels.

A 2007 revision in the law opened a revenue stream for paper companies that use the kraft process for papermaking. The kraft process yields a byproduct known as black liquor, a high-energy compound composed primarily of residual wood lignin, burned by paper mills as a source of energy.

Because black liquor meets the definition of an alternative fuel, a growing number of paper manufacturers have been adding small amounts of diesel fuel to their black liquor, creating a blended mixture that technicially qualifies for the federal tax credit. International Paper was paid $71.6 million by the Internal Revenue Service for using the blended fuel at 15 of its kraft mills in one month.

The use of the tax credit by paper mills raised a number of complaints and drew fire from Canadian paper manufacturers, who said the tax credit was subsidizing U.S. competitors and violated the North American Free Trade Agreement. Environmentalists have urged a repeal of the tax break for paper mills, noting it was designed to encourage replacement of fossil fuels, but mills were actually adding those fuels to obtain the credit.

An official for Boise Inc. said the elimination of the credit won’t affect the mill, but expressed concerns about what she perceived as a double-standard when it comes to the pulp and paper industry.

“Given that we did not believe we qualified for this credit, we did not plan for it and so there is no direct impact on Boise Inc.,” Virginia Aulin, Boise vice president for corporate affairs, said in a statement issued this week.

But Aulin said she questioned why her industry was singled out. The rationale appears to be because the pulp and paper industry has been generating and using this renewable energy for years, these companies should not receive any credits, she noted.

“We do not believe it is good public policy to interrupt or punish early adopters of sustainable practices,” Aulin concluded. “From a fairness point of view, if some industries are being rewarded for starting to do something that is good for the environment, an industry that has been doing the right thing for decades should be treated equally.”