So there’s been a lot of sound and fury on Reddit recently with people debating algae and biodiesel and not really understanding the basics of the situation.
I’m not an expert in the field, but I know a thing or two – I co-edited http://oilendgame.com which was really the book that made biofuels into a political reality.
There are four basic issues you need to think about when you’re talking about biofuels.

They are:

feedstocks

feedstocks

feedstocks

and conversion into transport

It all comes down to what do you put into the biofuel plant to get fuel. If it comes from a crop – soy biodiesel, corn ethanol – forget it. The global market just doesn’t support that much more crop growth. Even if you go to plants like Jatropha, the estimate (from Steven Koonin, Chief Scientist at BP) is that you can only get 30% of the world’s fuel supply from biofuels.

http://www.sciencemag.org/cgi/content/summary/311/5760/435

You can get a lot more dirt on this here: http://www.iea.org/textbase/nppdf/free/2004/biofuels2004.pdf

Now, the US is in an unusual position: vast fertile landmass, not very many people. So for the US, even though the world supply of biofuels (not counting algae) might be about 30% of total current demand, a lot of that supply is in the US. The USDA “Billion tons of biomass” report suggests that there’s a lot of straw, wood-chips and grass that could be turned into ethanol.

http://feedstockreview.ornl.gov/pdf/billion_ton_vision.pdf

You get something like 50 – 120 gallons of ethanol per ton of biomass, so you’re looking at a pretty decent fraction of America’s 300 million gallon a year fuel consumption. Couple that with radical energy efficiency in vehicles, and you get a plan that more or less makes sense. There are issues, and I don’t believe this is what will actually happen, but if you’re wondering what the whole deal is with ethanol, people who take ethanol seriously are talking about ethanol from wood and agricultural waste, called cellulosic ethanol.

The other thing you can do is make butanol, which is like ethanol, but four carbon atoms in the chain. Biobutanol production is a bit less far along than cellulosic ethanol, but it runs in regular car engines much more easily, and some say that it will basically run in any engine that gasoline will. The jury is still out on that claim, but DuPont’s entry into the biofuels market is biobutanol, allegedly “late 2007* so they better get moving.

http://www2.dupont.com/Biofuels/en_US/

Now, on to biodiesel.

Biodiesel from crops, waste oils and so on, is like corn ethanol pretty much: not much available, no real potential to solve the problem.

Biodiesel from algae is different. The whole thing really gets started with a US Dept. of Energy project, the Aquatic Species Program. This is a remarkably clever program that looks at growing algae and other species for energy, and it does great work. It gets closed in the late 1990s because oil is $14 a barrel and nobody can imagine ever needing their work.

10 years later, it’s nearly six times the price, and here we are looking at their work again.

http://www1.eere.energy.gov/biomass/pdfs/biodiesel_from_algae.pdf

So the deal is that there are four basic approaches to doing biodiese from algae.
open pond, monoculture
open pond, competitive ecology
sealed tubes
algal turf scrubbers

The problem is always that the strains which are storing “fat” (oil) tend to grow more slowly than the ones which put everything into making more copies of themselves, so usually you wind up with low oil contents, and therefore low yields.

Plus some systems use fresh water (BAD!) and others use saltwater (GOOD!.) We do not really have enough fresh water available to grow global quantities of algae for fuel in fresh water. Salt is the only real option.
Option one: Open pond monoculture is a disaster – genetically engineered algae strains growing in vats of Roundup, like we do with corn. Expensive, toxic, nasty. Evil, even. Forget it.

Option two: Open pond, competitive ecology means that you make diesel out of whatever blows into your pond, or trust the organisms you put there to see off the competition and thrive. Nobody knows how to do this yet.

Option three: Sealed tubes is all the current systems you’re hearing about. Odds-are that this approach is going to be expensive because it’s hard to build all those totally sealed containers so you can just grow the organisms you are interested in for fuel.

Option four, Algal Turf Scrubbers, is the one. The basic deal is that you grow the slimy hairy stuff that you find on rocks, rather than the floaty green stuff that turns your ponds green.
As a result, you have a mixed species competitive ecology, that grows in salt water, and that can be harvested by scraping it off the bottom of your ponds with a machine, rather than having to filter the entire pond to extract the algae to harvest them (which is difficult and expensive.)

It’s the only economically viable approach to doing algae cultivation for biodiesel that I know of.

http://algalturfscrubber.com

They call them Algal Turf Scrubbers because they were first used for purifying water so that corals would grow in it.

In terms of cars, here’s the problem: regular vehicles won’t run on biodiesel. So however you do this you wind up having to make ethanol for your cars. Fortunately, the waste left over from making biodiesel from algae can be fed into the same processes which are used for making ethanol from wood chips, and you get two for the price of one.

This is a pretty stable and sensible way of doing things, but it is in all probability never going to happen.
Odds-are that the plastic solar panel companies (Nanosolar, Konarka) are going to produce solar panels so cheap that it simply makes no sense to do biofuels at all. You just push much, much harder on battery technology (see ultracapacitors) and phase out the oil burning vehicles as fast as possible.

http://www.popsci.com/popsci/flat/bown/2007/green/item_59.html

I’m better than 90% certain that this is how the global energy economy is going to look in 20 years. Which is a shame, because biofuels from giant algae ponds is much more romantic than deserts being covered in power generating tarps, which is what we’re really talking about here, but that’s the way things happen sometimes.