Does pond scum really have the potential to limit our dependence on foreign oil? Companies that are devoted to converting algae into biodiesel, such as Green Fuel Technologies and LiveFuels are banking on it. Until about a month ago, I was only minimally aware that such companies existed. But believe it or not, the research surrounding algae as an alternative fuel is not particularly new. A program at the National Renewable Energy Laboratory investigating algae’s possibilities began in the late 70’s. But the relatively low cost of oil at the time, and lack of any other real drivers for R&D, led to a cut in funding a little more than a decade later.

Alternative energy encompasses a broad range of technologies, from solar power to wind power to carbon capture and storage. For the last few years, most of the buzz related specifically to alternative fuel has been focused around ethanol production. But backed by VCs and investment banks, energy from sources such as methane, hydrogen and biomass are garnering more attention.

Doug Frater, president and CEO of Global Green Solutions, another company using algae to make alternative fuel, told me that algae is an appealing alternative because for one, it grows just about anywhere, whether it is an open pond, a tube in a lab or under harsh conditions. It also reproduces extremely quickly and it can yield more oil per acre than soybeans. Frater says that an acre of soybeans will produce 45 gallons of oil over the course of a year, while in comparison, an acre of algae spread out over a pond will produce 10,000 gallons of oil.

Proponents also say that the process of converting algae to biodiesel produces less greenhouse gas than the refinement of corn to make ethanol, which critics argue burns almost as much fossil fuel as it saves. Algae naturally eats up carbon dioxide and emits oxygen during the photosynthesis process. So even though CO2 is emitted when converting algae to vegetable oil, and then to biodiesel, supporters argue that the process is somewhat carbon neutral.

If algae holds the promise that many investors are hoping for, it could become the next big thing in the way of alternative fuel.

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