May 30 (Reuters) - Little to no ethanol will qualify for

U.S. sustainable aviation fuel (SAF) subsidies under a new pilot

program by President Joe Biden's administration, which toughened

climate requirements at the last minute, according to a Reuters

review of government data and people familiar with the matter.

The issue could hurt the biofuel industry, which sees SAF as

ethanol's best chance at growth since electric cars have cut

into its market as a gasoline additive. It could also hinder

Biden's goal of producing 30 billion gallons of SAF by 2030. He

once promised 95% of SAF - a biofuel that can be made from oils,

waste, or grains - would come from farmers.

Details about how little ethanol will qualify for the

subsidies under the pilot program, and how the requirements were

raised at the final hour, have not previously been reported.

At issue is a $1.25/gallon production tax credit embedded in

the 2022 Inflation Reduction Act reserved for SAF that

demonstrates a 50% reduction in lifecycle greenhouse gas

emissions compared to regular jet fuel.

Under the pilot program finalized on April 30, ethanol

producers seeking to claim that credit must verify their corn

comes from farms using three climate-friendly farming practices

in tandem: not tilling the soil, planting cover crops, and using

higher efficiency fertilizers.

U.S. Agriculture Secretary Tom Vilsack touted the program as

"a great beginning as we develop new markets for sustainable

aviation fuel that use home grown agricultural crops."

But a Reuters review of data from the U.S. Department of

Agriculture (USDA) suggests almost no U.S. corn farmers use all

three practices at the same time. Officials at five farm and

biofuel trade groups told Reuters few, if any, ethanol-makers

will be able to meet the standard.

"I have not had a single ethanol producer member contact me

and say, we're going to meet the climate-smart agriculture

requirements," said Brian Jennings, CEO of the lobby group

American Coalition for Ethanol.

A USDA spokesperson said the rule was still a milestone

because it recognizes farmers' potential to fight climate

change, and would encourage adoption of climate-smart farm

practices. The agency did not provide an estimate of how much

ethanol would qualify.

The pilot program covers ethanol produced in 2023 and 2024,

and will be replaced by a new program in 2025 that biofuel

groups hope will be less restrictive.

"I see this (pilot) as a marker, a signal and think it was a

good first step," said Patrick Gruber, CEO of biofuel producer

Gevo ( GEVO ).

LAST-MINUTE CHANGE

The White House had been set to ditch the requirement that

all three farming methods be used at the same time, but reversed

course after Treasury Department officials said bundling the

practices would boost compliance and increase environmental

benefits, according to two sources familiar with the

discussions.

Bundling the practices also helped balance rural and

farm interests with environmental concerns, the sources said.

Environmental groups have long worried that biofuels can

cause climate and environmental damage if more land is cleared

to produce them.

The USDA does not collect data on how many farmers use all

three required climate-friendly practices together, but data

suggests the overlap is slim.

Nationally, continuous no-till is used on about 33% of

cropland acres, efficient fertilizer application on about 26%,

and cover crops on about 6%, according to a 2022 USDA report.

There is no breakdown by crop or for corn destined for

ethanol production facilities.

"It's a very small number of operations that would qualify,"

said Matt Ziegler, policy director with the National Corn

Growers Association.

The climate-smart requirements also present hurdles for

farmers who grow soybeans, another potential SAF feedstock.

Josh Gackle, a North Dakota farmer and head of the U.S.

Soybean Association, said the cover crop requirement is

particularly problematic in his region, where long winters and

short growing seasons make it harder for him to grow the

off-season crop than his peers in Iowa or Nebraska.

"We just want to make sure that the rules across the growing

regions are right so all places can participate," Gackle said.