Can I have two storeys in a 16 foot space?
You have two issues to contend with.

First is that 16 feet is just a bit too tight for two floors. Sure, we usually use 12 inch beams but that's just the structure - you need an actual floor on top and usually a ceiling below. Even if we ignore building codes we will still produce two rather cramped levels.

Second is what's actually holding the other end of the house up. If they built it on the hill, then that pile of dirt is rather important - you can't just shovel it out without adding house-grade support as you go. If it's filler behind a wall there is / will be a lot of pressure on the other side that you have to account for.

The black tarp is a water / erosion / insect barrier, and a rather cheap one at that. I would do spray-on concrete over the dirt, work in some levelled 4x4 beams when the concrete is being done, and develop the crawl space as a high-ceiling recreation room with lots of storage over the hill (resting on the 4x4s).