April 16 (Bloomberg) -- ConocoPhillips and Tyson Foods Inc. successfully lobbied the White House and other Bush administration officials to expand a tax break originally intended to help a plant in a top House Republican's district.

The provision's sponsor, Missouri Representative Roy Blunt, said he had wanted to provide a credit for diesel fuel produced with new technologies using animal carcasses and other food waste. Under rules issued by the Internal Revenue Service on April 2, the credit can now also be claimed by companies that use existing methods involving vegetable oil and animal fats.

The decision to expand the break, which Blunt opposed, may be worth hundreds of millions of dollars to ConocoPhillips and other refiners, while increasing demand for products from Tyson, the nation's largest meat packer and second-largest poultry processor.

The tax credit was ``hijacked,'' said Brian Appel, chief executive officer of West Hempstead, New York-based Changing World Technologies, the privately held company that owns the plant in Carthage, Missouri, that Blunt was attempting to help when he inserted the provision into an energy bill in 2005.

ConocoPhillips, the second-largest U.S. oil refiner, counters that its process qualifies for the credit under Blunt's provision and is consistent with President George W. Bush's goal of increasing production of renewable fuels.

`Technology Winners and Losers'

``The White House advocates not picking technology winners and losers,'' said Lou Burke, manager of alternative-energy programs at the Houston-based company.

White House involvement in the creation of tax rules is unusual, said Pamela Olson, a partner at Skadden Arps Slate Meagher & Flom who was an assistant Treasury secretary for tax policy from 2002-2004. She said procedures usually ``wall the White House off'' from Treasury Department and IRS rulemaking.

Archie Schaffer, senior vice president for external affairs at Springdale, Arkansas-based Tyson, said his company ``had meetings with the folks at the White House,'' including James Connaughton, chairman of Bush's Council on Environmental Quality. Burke said ConocoPhillips executives met twice with the Council.

The White House also heard from Appel and other members of the National Biodiesel Board, a trade group representing small producers that opposed the broad interpretation in the IRS decision, who met with officials there in September.

Added Expense

That same month, Blunt, 57, sent a letter to Treasury Secretary Henry Paulson, arguing against letting ``large unintended producers'' benefit from the $1-a-gallon tax credit because of the added expense.

The U.S. will boost biodiesel production to 1.2 billion gallons a year during the next decade from about 250 million gallons last year, according to a Deutsche Bank report. The new tax credit will also be an unexpected drain on the U.S. Treasury: Its cost was projected at $46 million through 2008 before the IRS issued the new rules.

The White House ultimately decided to support the expansion, and was ``encouraging Treasury to get the rules out,'' White House spokesman Scott Stanzel said in an e-mailed statement. Any delay ``was holding up investment in new technologies that will improve our energy security and reduce greenhouse gases,'' he said.

No Comment

Stanzel said Connaughton wasn't available for an interview. The IRS referred calls on the matter to the Treasury Department, where spokesman Andrew DeSouza didn't respond to requests for comment. Blunt's spokesman, Amos Snead, said the No. 2 ranking House Republican had no comment beyond his September letter.

The IRS decision is retroactive to Jan. 1, 2006, and the law is set to expire at the end of 2008.

ConocoPhillips began producing renewable diesel in December 2006 using soybean and other vegetable oils at its Whitegate Refinery near Cork, Ireland. It sought the IRS ruling because it wants to process the fuel at its U.S. facilities but must first ``expend a substantial amount of capital,'' Burke said in an interview.

``Before we make the improvement necessary, we wanted the IRS to agree that this product qualifies,'' Burke said. Spokesman Bill Tanner declined to say how much ConocoPhillips will benefit from the tax break, though he said the benefit would not be ``material.''

ConocoPhillips and Tyson today announced a strategic alliance to jointly develop diesel using Tyson's byproducts. Tyson Chief Executive Richard Bond said the joint venture would add between 4 cents and 16 cents per share in additional earnings, depending on the prices of wholesale diesel and animal fat.

$100 Million

ConocoPhillips will spend $100 million on renewable diesel over the next three to five years, Chief Executive Jim Mulva said at a news conference in Houston. The fuel will account for 3 percent of the company's total diesel production.

Shares of ConocoPhillips rose 6 cents to close at $70.60 in New York Stock Exchange composite trading. Tyson shares rose 45 cents, or 2.2 percent, to $20.90.

Tyson gains from the measure because it will generate higher prices and broader markets for animal byproducts the company sells, said Jeff Webster, general manager for renewable energy. He declined to be more specific. Other meatpacking trade associations also pushed for the IRS ruling.

Prices for tallow, a form of animal fat derived from cows or sheep, have risen about 40 percent since the energy legislation containing Blunt's provision became law in 2005.

Small Companies

Appel said the IRS action will make it harder for small companies to compete in the alternative-fuels market because they will have to build new facilities, while ConocoPhillips can claim the tax credit by using existing facilities.

``Now they get a real windfall,'' Appel said of the oil refiner.

David Breidenbach, a tax lawyer at Marathon Petroleum in Findlay, Ohio, for 26 years before retiring last June, said in a memo to congressional aides earlier this month that oil refiners could claim the tax credit with ``negligible incremental investment.'' He now advises congressional energy and tax committees on renewable-fuel initiatives.

``The U.S. is going to subsidize the oil companies,'' Breidenbach said in an interview.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: April 16, 2007 17:08 EDT