Biodiesel is a diesel fuel derived from animal or plant lipids (oils and fats). Studies have shown that some species of algae can produce 60% or more of their dry weight in the form of oil. Because the cells grow in aqueous suspension, where they have more efficient access to water,  and dissolved nutrients, microalgae are capable of producing large amounts of biomass and usable oil in either high rate algal ponds or photobioreactors. This oil can then be turned into biodiesel which could be sold for use in automobiles. Regional production of microalgae and processing into biofuels will provide economic benefits to rural communities.
As they do not have to produce structural compounds such as cellulose for leaves, stems, or roots, and because they can be grown floating in a rich nutritional medium, microalgae can have faster growth rates than terrestrial crops. Also, they can convert a much higher fraction of their biomass to oil than conventional crops, e.g. 60% versus 2-3% for soybeans. The per unit area yield of oil from algae is estimated to be from 58,700 to 136,900 L/ha/year, depending on lipid content, which is 10 to 23 times as high as the next highest yielding crop, oil palm, at 5 950 L/ha/year.
The U.S. Department of Energy's Aquatic Species Program, 1978–1996, focused on biodiesel from microalgae. The final report suggested that biodiesel could be the only viable method by which to produce enough fuel to replace current world diesel usage. If algae-derived biodiesel were to replace the annual global production of 1.1bn tons of conventional diesel then a land mass of 57.3 million hectares would be required, which would be highly favorable compared to other biofuels.