U.S. assists two crop-for-aviation-fuel projects

* Two companies will use camelina to make bio jet fuel

* Fuel is biggest cost for U.S. airlines

* Camelina is little-grown crop, seeds are high in oil

* Two other second-generation biofuel projects get aid

WASHINGTON, July 26 (Reuters) - Farmers in four states in
the U.S. West can qualify for a federal cost-sharing payment if
they grow camelina, an oilseed, for conversion into jet fuel,
the government said on Tuesday.

The assistance would encourage large-scale production -- up
to 51,000 acres (21,000 hectares) -- of camelina for sale to
aviation biofuel makers AltAir Fuels LLC, of Seattle, and
Beaver Biodiesel LLC, of Portland, Oregon.

It would be the first time the Agriculture Department
subsidized an aviation bio-crop.

Agriculture Secretary Tom Vilsack said the announcement
coincided with the one-year anniversary of an initiative by the
U.S. Agriculture Department, Boeing Co (BA.N) and the Air
Transport Association, an airline trade group, to bring bio jet
fuels to market.

AltAir aims for a drop-in substitute for traditional jet
fuels with production beginning in late 2012 in Bakersfield,
California, and in 2014 at Tacoma, Washington.

USDA payments would be available on camelina grown on
50,000 acres in central California and an area of eastern
Washington state and western Montana.

"The market will be there on aviation," said John Williams,
a spokesman for AltAir, which believes bio jet fuel will be
price-competitive.

Beaver, which produces nearly 1 million gallons a year of
biodiesel, would use camelina from 1,000 acres near Albany,
Oregon, to produce an aviation fuel.

Fuel is the No. 1 cost for U.S. airlines, which burn 17.5
billion gallons of fuel a year, says the ATA.

Camelina-based fuels have been tested by the U.S. military
and on commercial aircraft. Two commercial craft used the fuel
to fly to the Paris Air Show last month.

Under a 2008 law, the USDA can pay up to 75 percent of the
cost of planting a biomass crop near a biomass processor and an
annual payment for producing the crop. Annual payments run up
to five years for grasses and 15 years for woody plants.

An annual crop, camelina needs little rainfall or
fertilizer and can be grown in rotation with wheat or on
marginal land. Its seeds are 40 percent oil, double the content
of soybeans.

"Camelina is a great feedstock," said Daniel Shafer,
principal manager of Beaver Biodiesel, but it is fairly new to
U.S. farmers so USDA payments will make it more attractive to
growers while the biofuels market develops.

The USDA announced cost-share support for two other
projects:

-- Twenty thousand acres of switchgrass near an Abengoa
(ABG.MC) biofuels plant at Hugoton, Kansas, to produce ethanol
from cellulose, found in grasses, plant debris and woody
plants.

-- Seven thousand acres of hybrid poplar plants at
Boardman, Oregon, near a biomass plant for cellulosic biofuel
maker ZeaChem Inc. The project is part of a USDA Wood-to-Energy
initiative and would integrate energy feedstocks into timber
production. ZeaChem is building a 250,000-gallons-a-year
plant.

The USDA said it would spend $45 million over the lifetime
of the cost-share contracts for the four projects. Earlier this
year, the USDA announced five cost-share areas for switchgrass
in Missouri and Kansas and for giant miscanthus in Arkansas,
Missouri, Ohio and Pennsylvania.
(Reporting by Charles Abbott; Editing by Dale Hudson)