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That is one regressive law; it negates the benefit of alternative fuels altogether...
In that case, a Daihatsu Mira engine with a turbo added should do the trick. If you have a final weight of 800 lbs including driver, 100 horsepower would be plenty for your needs...
Another possibility is using an air-cooled engine from a Citroen 2CV, like the Tryane II car, built of wood. But performance will be severely lacking, unless you find some means to add power. IIRC, the 602cc version only has 28 horsepower, and was the most powerful engine Citroen put in the 2CV(an upgraded model did have 33 hp). It is also air-cooled, and you'd need a means to have more cooling if you want to retain aerodynamic advantages and have more power from it. I don't imagine the efficiency of this engine being too great, either, although it is extremely light.
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