A very promising area for biofuels that requires more research is the development of algae-based biofuel. Algae could offer much larger fuel per land area yields than first generation biofuels and could be grown in infertile areas such as deserts or marine environments, thereby avoiding issues of displacement of land used for food production. Further environmental benefits of algae could accrue from the use of waste materials as feed and from the capture of carbon dioxide by algae plantations. However, substantial further research and investment is required to assess the viability and produce the necessary infrastructure for commercial algae production and oil refinery for biodiesel use. This type of research could offer a high likelihood of productivity spillovers for other potential uses of algae in industries such as food-related products, bioplastics and other bioproducts, pharmaceuticals, and pollution reduction, suggesting that this could be a highly beneficial area for public R&D funding.
Currently, some of the leading companies involved with third generation biofuel research and development include Verenium Corporation, GEVO, Sapphire Energy, GreenFuel Technologies Corporation, and Solazyme. Various supermajor oil companies, such as Shell, Chevron, and ExxonMobil, have also financed subsidiaries that are involved in research in this area. These large firms have sufficient R&D budgets to be able to devote funding toward algae biofuels which are not yet capable of being commercialized. Smaller companies involved with algal research have tended to be dependent on partnerships with large companies, public subsidies, or other research grants.