Doug Lynn (above), who runs a nonprofit biofuel facility in New Mexico, says commercial fuel production from algae is "very close." Others aren't so sure.

In the white-sand desert outside Carlsbad, N.M., stands a facility comprising a few outbuildings and five large saltwater ponds. The ponds are artificial, and they’re split into a series of rectangles outfitted with blowers and large paddles that continuously aerate and circulate the water.

It’s like something you’d see at a commercial fishery, except for one thing: The water in these ponds is green. Really green. So green, in fact, that it’s impossible to see the bottom. That’s because the ponds are filled with algae. The Center of Excellence for Hazardous Materials Management (CEHMM), the nonprofit organization that built and now runs the facility, has high hopes for the pond scum it’s growing, says CEHMM Executive Director Doug Lynn. “There’s great promise in those ponds.”

He’s talking about fuel. Lynn’s organization is among a small but rapidly growing group of nonprofits and private companies that are banking on algae as the next breakthrough in biofuels. They’re spending hundreds of millions of dollars researching and cultivating different algal strains, extracting and refining the oil contained in them, and trying to determine whether it’s possible to make algal fuel commercially competitive with traditional petroleum. If they’re successful, they hope algae could be the key to ending the United States’ dependence on foreign oil.

The promise in those ponds is indeed impressive. Algae are natural and nontoxic. In fact, they consume massive quantities of carbon dioxide, reducing the amount of greenhouse gases in the air. The plants thrive in brackish water and hot temperatures, so they wouldn’t take up land that’s otherwise suitable for agriculture. And they’re extremely high yield: Some algal strains produce more than 10 times the fuel per acre than the soybeans used to make biodiesel or the corn grown for ethanol.

Given those potential benefits -- along with high global gasoline prices and the general increase in eco-friendly alternatives in recent years -- it’s no surprise that interest in algae is exploding right now. According to a report from market research group Global Information Inc., companies involved in the algae biofuels industry shot up 550 percent between 2005 and 2007. Today more than 100 companies worldwide are working to develop algal fuel. This year, the algal fuel market is worth $271 million, the report says; by 2015, it’ll be worth more than $1.6 billion.

While most of the money flowing into the industry comes from private investors, much of it also comes from the government. This year, the U.S. Department of Energy (DOE) awarded $74 million to companies conducting algal research. The U.S. Department of Defense and its Defense Advanced Research Projects Agency (DARPA) are spending tens of millions of dollars funding additional research into developing algae-based jet fuel. And it’s not just the federal government that’s investing -- states are too. The California Energy Commission has funneled more than $1.5 million to companies studying algae. And New Mexico has given $2.4 million to the CEHMM. It’s part of the state’s “proactive approach to green energy,” says Colin Messer, energy program manager for biodiesel in the state’s Energy, Minerals and Natural Resources Department. “It’s very exciting, and I hope to see it really develop.”

Still, Messer says, he’s concerned that the hype around algae may not reflect the reality. “It’s going to take a lot of research. It’s not around the corner. I am at best skeptical.”

The Future of Algal-Fuel Production

The hyperactivity surrounding algae has really only picked up in the past couple years. But researchers have struggled for decades to develop an algal fuel. After gasoline price spikes in the 1970s, the DOE focused on finding petroleum alternatives. In 1978, the DOE started the Aquatic Species Program, a $25 million project at the National Renewable Energy Laboratory (NREL) in Golden, Colo., to investigate microalgae’s fuel potential. By the mid-’90s, however, low gas prices and increasing focus on ethanol took the focus off algae. The government terminated the Aquatic Species Program in 1996.

“It was a very successful program,” says Al Darzins, a principal group manager at NREL’s National Bioenergy Center. The problem was that algae just seemed too expensive. “If you could even produce algae oil [at that time], you were still looking at $60 to $80 a barrel,” says Darzins, noting that gasoline was selling for about $20 a barrel then. “They looked at that and said, ‘Hey, this doesn’t make any sense.’ And the money got funneled into ethanol.”

One question plagued the Aquatic Species Program: Can algal-fuel production be scaled up to a commercial level? And it continues to be the central challenge of algae research today. Opinions vary wildly. The DOE believes large-scale commercialization is still 10 years off, while DARPA said earlier this year that affordable algae biodiesel was only months away.

In New Mexico, Lynn says he’s ready to go now. In April, his facility added an on-site biorefinery, making it the world’s first fully vertically integrated algal fuel production facility, capable of producing more than 1,000 gallons per day. “We are ready to pull the trigger on a commercial plant,” he says. “We just need the money and land to build it. We’re very close.”

Others in the field aren’t as optimistic. John Benemann, a biochemist -- and one of the world’s foremost experts on algal fuel -- co-authored NREL’s after-action report on the death of the Aquatic Species Program. He believes the industry “is still a long way behind in terms of domesticating algae. It could take five years or it could take 50. I’m in the camp that considers this is just not ready to scale up.”

Even if researchers conquer the scalability problem, there’s another major challenge with commercial algae production: water. Algae need water, and lots of it. On average, a liter of water in a pond full of algae only yields about a gram of usable biomass -- only some of which will actually produce oil. And in hot, dry climates where algae grow best, water evaporates from ponds extremely fast. In southern New Mexico, where Lynn’s ponds are located, water evaporates at a rate of 40 percent, according to Messer. “Water is a huge, huge issue.”

For states, the question may not be, “How soon?” The question may be, “How much should we get involved?”

Benemann says governments should focus on making way for these technologies, but they should be wary of the hype. “State and local governments have a role in implementing the technology on the ground,” he says. “But it is a very big mistake for states and cities to get involved in giving money to technologies that really aren’t yet, shall we say, up to speed.”

For Lynn, it’s a question of states’ regulating this field in a way that makes sense. “States need to understand the complexities of this industry,” he says.

Lynn’s ponds, for example, are held to the same standards of dairy-pond construction. “Why does the state mandate that when there’s absolutely no E. coli in algae?” he says. “Regulators need to meet with algal producers and find out what kind of process will speed the development of this industry.”

Perhaps the biggest question is expectation versus reality. Algal fuel production is still very much in its infancy. Why should states, companies or nonprofits expect it to turn a profit at all anytime soon? Darzins compares it to ethanol: “We’ve been working on cellulosic ethanol for more than 20 years. Yeah, we worked on algae in the ’80s and ’90s, but it’s really only now back in full swing. If it’s taken the country 20-plus years on ethanol, why do you think algae is going to take any less?”