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A combination of rising food prices and environmental concerns has helped spark a backlash against biofuels. Once viewed as a key component of any successful climate mitigation strategy, biofuels — particularly those derived from food crops, such as corn ethanol — have seen their popularity wane in recent months as scientists and policymakers alike have come to realize that their costs may far outstrip their perceived benefits.

Brazil has arguably become the poster child for biofuel enthusiasts, who point to the success the country’s sugar cane-based ethanol program has achieved in weaning a significant number of consumers off fossil fuels. The government’s early, aggressive use of price controls and subsidies helped jump start a market that now provides over 30% of the country’s automobile fuels — one that Amyris Biotechnologies, an Emeryville, Calif., based synthetic biology startup, is hoping to tap into.

Several startups in the U.S., including LS9, Codexis and Synthetic Genomics, the company started by Craig Venter, are using synthetic biology to engineer microorganisms in order to produce hydrocarbon-based fuels. They have received millions in VC funding from the likes of Lightspeed Venture Partners, Flagship Ventures and Khosla Ventures. Amyris has just announced a partnership with Crystalsev, one of Brazil’s largest ethanol distributors and marketers, to commercialize advanced fuels — diesel, jet fuel and gasoline — derived from sugar cane.

The new venture, Amyris-Crystalsev, expects its first product, a form of diesel that reduces emissions by 80% over conventional diesel due to the less carbon intensive production process, to reach the market in 2010. Amyris will hold the majority the majority stake in the venture. Santelisa Vale, Brazil’s second largest ethanol and sugar producer and Crystalsev’s majority stakeholder, will provide 2 million tons of sugarcane crushing capacity.

Amyris uses a suite of molecular biology and genetic tools to insert new pathways into microorganisms and coax them into secreting hydrocarbon-based fuels. Unlike current biofuels, these are fully compatible with existing engines and distribution infrastructure and achieve net emissions reductions. Moreover, the process can be scaled up to obtain higher cost efficiencies and lower energy consumption during production.

The venture will start producing its fuels with sugarcane to take advantage of Crystalsev’s market clout in Brazil but expects to diversify into other plant-based and cellulosic feed stocks. Though it plans on eventually expanding its distribution worldwide, the partnership will initially focus on the U.S. and Brazilian diesel markets. Amyris-Crystalsev will open their R&D headquarters in Campinas, a region located between Sao Paulo and Ribeirao Preto, Brazil’s sugarcane capital. The first pilot facility will begin operations next year.

Tropical BioEnergia SA, a joint venture operated by Santelisa Vale and Maeda Group, has also just unveiled a new partnership with BP, in which the latter will assume a 50% stake. Tropical BioEnergia SA is currently building a 115 million gallon a year ethanol refinery; the new partnership will invest close to $1 billion — the largest such investment made by an international oil company in the Brazilian ethanol industry — in this and a second refinery. BP and Tropical BioEnergia plan on producing conventional sugarcane-based ethanol.

Amyris cites industry estimates predicting that demand for petroleum diesel is expected to grow 4% annually and to exceed 600 billion gallons by 2020 to underline the appeal of its new venture. With the demand for corn ethanol likely to slow as a result of the current food crisis, sugarcane-based fuels may soon become the favored alternative.

LS9, a Silicon Valley startup that hopes its technology may one day help replace petroleum, has taken $15 million more in funding.

The San Carlos, Calif. company uses synthetic biology to modify microorganisms in order to produce high-energy fuels, including to power cars (see our previous coverage).

According to the company’s own projections, it is two to three years from commercializing and selling a synthetic fuel. LS9 recently recruited president Robert Walsh, who brings several decades of supply-line experience from Royal Dutch Shell.

Despite the huge potential returns from producing synthetic fuels, the number of startups in the field is limited by the small pool of knowledgeable experts in synthetic biology. One pioneer is Craig Venter, who recently added to his own human genome project fame by announcing he is capable of creating life. His own company, Synthetic Genomics, is a competitor to LS9.

Other companies competing in the area include Amyris Biotechnologies and Codexis. Each startup is betting on its own proprietary methods to replace petroleum-based fuels.

LS9’s most recent $15 million in funding was led by Lightspeed Venture Partners. Flagship Ventures and Khosla Ventures, the company’s original backer, also participated. The company has so far taken a total of about $20 million.

LS9, a San Carlos, Calif. company, says it has developed a petroleum-like fuel made out of renewable sugars, pointing the way to a potentially more efficient type of clean alternative to dirty crude oil.

Executives of the Silicon Valley company tell the Wall Street Journal they have produced hydrocarbon from sugar by mixing it with a microbe they’ve developed.

Unlike ethanol or biodiesel products being developed by a growing roster of other companies, this substance is a “biocrude” that lacks oxygen, like petroleum, they say. The molecular similarities mean the liquid could be pumped into the existing refining system and processed into gasoline, which LS9 officials see as the primary advantage of their approach. Ethanol, by contrast, requires separate facilities.

The process still must withstand external scrutiny, but will outlined today by Stephen del Cardayre, LS9’s head of research and development, in a talk before a Denver conference on industrial microbiology today.

The company is backed by at least $5 million in backing from Khosla Ventures, among other investors. Vinod Khosla, leader of that firm, has invested in a array of ethanol companies, and has come to see the huge challenges of creating alternative distribution system for fuel. This is one more way for him to hedge his bets.

Craig Venter, the controversial entrepreneur who led the private-sector effort to sequence the human genome, is now seeking a patent for a “minimal genome,” a type of synthetic biology aimed at creating life forms, or living “machines.”

It may even be used for creating ethanol or other biofuels, something that several other companies are working on.

The US patent application (see the application here), filed by Hamilton Smith and colleagues at the J. Craig Venter Institute in Rockville, Maryland, claims ownership of a set of less than 400 genes required to sustain a free-living microbe. According to a New Scientist article:

The patent states that a synthetic genome bearing the genes could be inserted into a bacterium stripped of its own DNA. The idea is that this bacterium will become a “chassis” for synthetic biology, used to carry genetic circuits with novel functions. The patent also claims a specific application: producing ethanol or hydrogen for fuel.

There’s more coverage about Venter’s efforts here.

Synthetic fuel is something Amyris in Emeryville, Calif. backed by Kleiner Perkins and well-known investor Vinod Khosla is also trying to do, as we reported here. Khosla has backed LS9.com, which is doing something similar.