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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.

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