Scientists at a research and development laboratory in Menlo Park are refining the process of using microbes found in termite guts to turn forests of fast-growing poplar trees into an environmentally friendly form of ethanol to power cars.

A South San Francisco firm is using algae to produce oil in large fermentation tanks, while researchers at the Joint BioEnergy Institute in Emeryville are designing a synthetic catalyst to break down energy crops into sugars to make new, cleaner liquid fuels for today's cars and jet aircraft engines.

The search for biologically derived transportation fuels has exploded into a technological drag race among Bay Area researchers - one that could morph into business profits for corporations, entrepreneurs and investors as the next generation of biofuels begins to replace or augment crude oil and gasoline.

Federal energy officials have set a goal of replacing 30 percent of today's transportation fuel with biofuels by 2030. The Obama administration plans to support biofuel research with seed money and to help firms test the new technologies in small-scale pilot plants, build large production facilities and bring new products to market.

3 areas of investigation

Groundbreaking chemistry, genetic engineering and synthetic biology are at the core of attempts to understand how nature breaks down plant matter such as wood and grasses to unlock the solar energy stored in plants.

Researchers are also exploring how special genes, enzymes or synthetic compounds can speed the process of converting plant matter into clean, liquid energy.

"The opportunity is here, the time is now," said materials scientist Dean Dibble, who works at the Joint BioEnergy Institute in Emeryville. "This is very new chemistry, so there's a lot of low-hanging fruit."

Researchers are focusing on three key areas - the natural world of insects and bacteria, marine algae and nonfood energy crops - to create a new generation of biofuels.

The Department of Energy's Joint Genome Institute in Walnut Creek has worked with leading scientists to explore the genes of microbes that live in a termite found in the jungles of Costa Rica.

Termites turn plant matter into fermentable sugars, digesting vast amounts of wood in a short amount of time. Specialized microbes in termite bellies are used to break down plant cell walls and speed the digestive process.

"We're looking into nature to see what's already there," said microbiologist Falk Warnecke of the Joint Genome Institute. "Most of these microbes growing in the termite guts cannot be grown in the laboratories, but we're trying to use their enzymes ... The next step is that biotechnology companies and researchers take these enzymes and try to develop them for biofuels."

These enzymes may be useful in breaking down cellulose, the rigid material in plant cell walls. But adapting enzymes or bacteria for an industrial-scale system isn't easy.

At the ZeaChem laboratory in Menlo Park, microbiologists use bacteria from termite guts to ferment plant matter such as poplar trees into ethanol - a process that has a low carbon footprint, company officials say.

"We don't do any genetic engineering or biological manipulation," said Dan Verser, a co-founder of ZeaChem and its executive vice president of research and development.

Algae oil may beat ethanol

ZeaChem, which is based in Denver, plans to begin construction later this year on a demonstration project in Boardman, Ore., next to a forest of poplar trees.

Oil found in the microscopic cells of algae has been called a miracle fuel by algae's promoters, who held the first Algae Biofuels World Summit conference in San Francisco last month. Algae oil will be cleaner and cheaper than oil and ethanol, they say.

Critics say the slimy, oil-rich algae - microscopic, plantlike organisms that normally feed on sunlight and carbon dioxide - are vastly overrated.

Solazyme Inc., of South San Francisco, is among the dozens of firms hoping to capitalize on algae's potential. The firm is genetically engineering strains of algae to grow on sugar cane, wood chips and agricultural residues - without sunlight - in steel tanks.

"We've made tens of thousands of gallons of oil with this process," said Harrison Dillon, president of Solazyme. "We've been road testing our fuels, trying them on unmodified engines."

Solazyme has worked with San Ramon's Chevron Corp. to develop biodiesel made from algae. Last year, Solazyme introduced the first algal-based renewable diesel fuel. It has also developed a jet fuel made from algae.

At the Department of Energy's Joint BioEnergy Institute in Emeryville, researchers are developing specialty bio-energy crops that can be easily broken down into sugars, such as synthetic variations of wild grass and poplar trees.

They are discovering new enzymes by exploring relatively unknown microbial communities such as rain forest floors and compost, and studying how these enzymes break down cellulose. They also are studying the genes and proteins found in cells of natural and engineered plants.

And they are creating synthetic enzymes that are more effective than nature in breaking down cellulose found in plants and turning them into sugars.

"For the first time, we have the genetic tools to develop a bio-energy crop. In the past, it was whatever nature provided," said Harvey Blanch, the institute's chief science and technology officer. "Because of synthetic biology, we are able to produce new organisms that can do things that they don't do in nature."

Typically, ethanol is made with the aid of yeast to ferment sugars from corn. The Emeryville scientists are engineering new microbes as an alternative to yeast to quickly ferment complex sugars into gasoline substitutes for today's car engines.

Oil companies on board

Oil companies have also begun to invest in biofuels research and development. The Energy Biosciences Institute at UC Berkeley, founded last year, was financed by a $500 million grant from BP, the British oil giant.

The institute's researchers are using satellite imagery, geologic surveys and market databases to locate places where non-food energy crops such as prairie grass can be planted on non-agricultural lands so that food crops will not be displaced.

They are analyzing hundreds of thousands of plant species to see which ones are best suited as energy crops, especially species that have a high tolerance for salty soils and plants that do not need fertilizer and will not cause agricultural runoff, such as miscanthus, a tall perennial grass.

Sean O'Hanlon, executive director of the American Biofuels Council in Miami, said several sources of biofuels have market potential.

"I can't quite call this a Manhattan project or compare it to the '60s space program, but it's rapidly approaching those points," he said. "We have to start applying this science. This is no longer a research project."