There are two key problems.

Firstly the change in use of arable land to biodiesel agriculture is creating an unholy competition between food for people, and "food" for cars, which has resulted in huge hikes in the price of food crops such as wheat, causing increasing starvation and poverty globally.

Secondly even if ALL global land use were turned over to biodiesel production, it would still be nowhere near enough. Presently 20% of US argricultural land is only producing enough biofuel for 2% of vehicles.

(source and reference http://www.monbiot.com/archives/2005/12/06/worse-than-fossil-fuel/)

So when will people wake up to this?
Checked out wiki on algae as suggested, turned up this "However, according to one 2007 study, algae-based biofuel will not be commercially viable until fuel prices exceed 0/barrel" - which of course doesn’t mean you are wrong. It just means that fuel will be ten times the present price IF a viable strain can be produced.
While scrap oil conversion into biofuel is just great, it would provide less than 0.3% of the fuel needed if all of it was used for fuel.
Just a thought Derek on this Algae stuff. Whatever claim is made algae-producing oil, the laws of physics are inviolate. Algae like any other plant fixes energy through photosynthesis which is essentially powered by the sun, and therefore subject to the 1kw/m^2 rule x process efficiency. The 4000-10000x as good as other biofuel looks on surface inspection to be little more than hype, comparing the top google search (which smacks of MLM) with the more balanced wiki entry.
@ Molly - same deal as chipfat. There are some good sources which can be converted from waste, but the volume of waste is nowhere near enough to solve the problem on its own. When have to start turning over land-use you hit exactly the same trouble.

"Battelle’s recent report entitled, "Near Term U.S. Biomass Potential", looked at a scenario for producing 50 billion gallons of ethanol per year from cellulosic biomass. "The primary biomass supply would consist of waste biomass streams plus the production of energy crops." The waste stream was estimated to contribute 40-50% of the supply. The report concluded that the expansion of biomass supplies needed to achieve this level of production "would not result in large impacts on the agricultural system." Beyond this level of production, "dedicated energy crops would be required with implications for the cost of cropland and competition with food crops."

http://www.harvestcleanenergy.org/enews/enews_0505/enews_0505_Cellulosic_Ethanol.htm
Bohemian, what you post is actually a consequence of the competition between land to be used for food or oil. In the first instance land upon which food production was not profitable becomes profitable for the first time. That is how it begins, but not where it ends.

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