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Health Care Reform: That Strange Biofuels Rider in the House Manager’s Amendment

Today's a good day to be scum. (photo by tomswift46)

Today's a good day to be scum. (photo by tomswift46)

Late last night, in the midst of Election Day, the House leadership revealed the “manager’s amendment” that would represent the final changes to their health care bill before a vote. It is likely this vote could come as early as Friday. Nancy Pelosi released this statement.

Tonight, we have filed a manager’s amendment to the Affordable Health Care for America Act, which is the next critical step toward comprehensive health insurance reform that ensures affordability for the middle class, provides security for our seniors, and protects our children’s future by not adding to our deficit. Our bill covers 96 percent of Americans, makes coverage more affordable for all, and creates new consumer protections that will end discrimination by insurance companies against the sick and cap what Americans pay out-of-pocket.

So what’s in the manager’s amendment? Pelosi highlights the following: strengthening state regulations against price gouging by insurance companies by providing $1 billion in grants; clarifying the repeal of the insurance industry’s anti-trust exemption (that part is based on language from Republican Dan Lungren that would allow insurers to continue to work together to collect historical loss data); more oversight; and setting limits on insurers from entering the insurance exchanges without compliance to regulations (they actually could be excluded now if they raise premiums too high).

What ELSE is in the manager’s amendment? A lot.

There are some changes to the eligibility requirements in one section as it relates to undocumented immigrants, but those changes look to be largely cosmetic. It also looks like the NAIC may NOT set the rules for insurance regulations, based on the line: “Page 203, line 6, strike ‘NAIC’ and insert ‘Secretary’. That’s a win for progressives. So is the strengthening of the Office of Minority Health, something sought by the Progressive Tri-Caucus and the CPC in recent days.

However, there are no changes to the public option, including one sought to put a different ceiling on provider rates. And Bart Stupak’s bluff has been called, as the language around abortion coverage has not been changed.

There is, however, one peculiar addition to the bill: a second-generation biofuel producer tax credit.  As Jon Walker says:

That is right. The health care reform will be used as a vehicle to change the tax credit treatment of cellulosic biofuel. Ironically, this means development of second generation biofuel will be overseen by the Secretary of HHS, although they must consult with the Secretary of Energy and head of the EPA on the matter.

While this is not my expertise, it seems the amendment would allow the tax credits meant to encourage the develop of cellulosic ethanol to be used to help develop multiple types of “second generation biofuels.” That would include biofuels made from cultivated algae or cynobacteria. At first glance, this seems like a good thing. The more possible routes explored the better chance of finding one that works. I’ve seen research indicating that hydrocarbons produced by cultivated algae may have greater potential as a economically viable future biofuel than cellulosic ethanol. Of course, this is not my expertise, so there might (and probably is) some huge industry give away that I’m missing.

Interestingly, Chris Van Hollen, the head of the DCCC, introduced a bill on the biofuel producer credit just yesterday. That language appears to have been swallowed whole by the health care bill. Van Hollen’s release claims that the credit would “raise approximately $24 billion over ten years.” I think I’ve figured out how that can be.

The bill actually follows up on and clarifies an existing tax credit for second-generation biofuels that was being exploited by the paper industry. This “black liquor” credit was being used by pulp producers to get renewable energy tax credits for burning wood, something they were doing anway. By mixing a tiny amount of diesel fuel into what’s left over after making paper and burning it for power generation, they were getting a tax windfall. Greenwire explains:

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.

This credit actually disadvantages recycled paper mills in favor of those using wood, which can get this “black liquor” tax credit.

So this looks to me like a way to wring $24B in savings out of the health care bill, reducing concerns about it busting the deficit and aiding the CBO score. It also fixes an unintended consequence of previous energy policy.

But we should also ask who benefits. In this case, that would be recycled paper mills, and the advanced biofuels industry, thanks to some other pieces in the bill. At first blush, I would guess that advanced biofuels producers are located in rural areas with lots of farmland – in other words, the kinds of places that Blue Dogs inhabit.

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David Dayen

David Dayen