WASHINGTON — Big paper companies could each get hundreds of millions of dollars in cash payments from the Treasury this year by taking advantage of an alternative fuels tax credit in the 2005 highway bill, according to company filings and Wall Street analysts.

The alternative fuels clause, which appears on page 804 of the massive 2005 highway bill, was intended primarily to increase the use of ethanol and other biofuels in cars and trucks, said congressional sources and lobbyists who helped shape the measure.

But paper companies are now being richly rewarded for the long-standing practice of using a byproduct of the wood pulping process as a fuel to run their mills. The paper companies, which had not applied for these benefits before the end of last year, have not needed to alter or improve their existing business practices to qualify for the tax breaks, analysts said.

Burning the fuel known as “black liquor” dates to the 1930s, and paper companies have consumed nearly all of the byproduct since the 1990s.

A J.P. Morgan analyst report said the companies were “burning black liquor into gold.”

In the fourth quarter of 2008, Verso Paper, 62 percent owned by the private-equity firm Apollo Management, filed an application with the Internal Revenue Service for certification of its eligibility to receive incentive payments for its use of black liquor in alternate fuel mixtures at its Androscoggin Mill in Jay, Maine, and the mill in Quinnesec, Mich. The company received a $29.7 million incentive payment in February for operations in the fourth quarter at the Androscoggin mill. A similar payment for fourth quarter operations in the Quinnesec mill was expected this month.

Black liquor is a byproduct of the kraft process of creating pulp, which is not used at the company’s mills in Bucksport, Maine, and Sartelle, Minn.

International Paper announced recently that it received a $71.6 million cash payment from the Treasury to cover a one-month period of operation late last year, from mid-November to mid-December. A Goldman Sachs report issued March 25 estimated that International Paper alone could receive as much as $1.06 billion in tax benefits this year. J.P. Morgan said International Paper could reap as much as $3.7 billion in benefits.

Other big beneficiaries in the paper industry include Montreal-based Domtar as well as U.S. companies Weyerhaeuser, Mead Westvaco and Temple-Inland, the Goldman Sachs and J.P. Morgan reports said.

The payments come at a critical time for the paper industry, which has been losing money during the economic slump. Because the tax credit is refundable, money-losing companies such as Verso and International Paper qualify for direct payments from the Treasury, instead of offsets on taxes owed. International Paper lost $452 million in the fourth quarter of 2008. Unlike money lent by the Treasury to banks or ailing automobile companies, these sums will not be repaid.

“Even though we expect only a temporary cash infusion, the amounts are material and fairly well timed given where we are in the cycle,” said a report by a team of J.P. Morgan paper and forest industry analysts.

Keith Van Scotter of Lincoln Paper and Tissue in Maine said the company has been certified by the IRS for the incentive payment for the use of black liquor, but declined to discuss the amount of the payment. The payment was much smaller than other paper companies received, according to Van Scotter.

He said the pulp and paper industry was the original developer and user of alternative energy and that the types of incentives offered through the IRS program allow paper companies to focus their resources on improving technologies. Lincoln Paper currently has four applications in addition to the use of black liquor that use biomass to displace the use of oil. Those applications, Van Scotter said, also qualify for the tax credit.

The use of black liquor does have benefits. By burning the byproduct, mills avoid discharging toxic chemicals and can become largely self-sufficient in energy.

Jeff Dutton at Fraser Papers has a different view of the tax credit.

“Ninety percent of the mills in Maine will tell you this is a good thing,” he said. “We won’t.”

Although the company does use a chemical pulping process that creates a “red liquor,” that process is used at its plant in Edmundston, New Brunswick.

“We have a chemical plant, but it’s in Canada and doesn’t qualify for the tax credit,” he said. “That will put us at a huge disadvantage if the credit stays.”

If the mill was in Maine, he said, it would qualify for the tax credit.

Dutton said the tax credit essentially creates an unfair subsidy for Fraser’s competitors. Because they have access to the tax credit, “our competitors’ pulp costs are artificially lower than ours,” he said.

That especially puts pressure on the company’s mill at Madawaska as well as its sawmills in Ashland and Masardis, he said.

Dutton also claimed that the use of black liquor can encourage increased use of diesel fuel, which often is mixed with black liquor in recovery boilers. Some mills, he said, are burning the diesel-black liquor mixture in order to get the tax credit.

Some financial analysts worry there will be a backlash from Congress as the payments mount.

“We would not be aggressively buying the stocks based on the potential benefit from the tax credit. We are concerned that lawmakers will see the application of the credit by the industry as an unintended application of the credit and may close off the benefit,” said the Goldman Sachs report.

Spokesmen for key members of Congress on the Transportation and Ways and Means Committees said members were not available to comment on the issue.

Rich Hewitt of the BDN staff contributed to this report.