As of today, it has been shown that it is scientifically and technically possible to derive the desired energy products from algae in the laboratory. The question lies, however, in whether it is a technology that merits the support and development to overcome existing scalability challenges and make it economically feasible (Mcgraw 2009). Additionally, the basic economic motivation for biofuels is that they are a convenient, low-priced, domestically producible, and a substitute for oil; an energy source that is getting costlier; and it is mostly imported from politically volatile regions (Castanheira and Silva 2010). Economic feasibility is believed to be currently the main hurdle to overcome for this technology. Current costs associ­ated to both the state of the science and technologies are sizeable and represent a main factor hampering development.

High costs often prevent the market diffusion of novel and efficient energy technologies. As microalgae biofuel is not a mature technology, it becomes important to provide a revision of technological innovation and diffusion aspects to enlighten some available options that may help overpass the barriers found by innovative technologies (Ribeiro and Silva 2013).

It is widely recognized that modern economic analysis of technological innova­tion originates fundamentally from the work of Schumpeter (1934), who stressed the existence of three necessary conditions for the successful deployment of a new tech­nology: invention, innovation, and diffusion. His seminal work has been constantly referred (Soderholm and Klaassen 2007), and each of the keywords represents differ­ent aspects; in particular, invention includes the conception of new ideas; innovation involves the development of new ideas into marketable products and processes; and diffusion, in which the new products and processes spread across the potential market.

Emergent technologies are relatively expensive at the point of market intro­duction but eventually become cheaper due to mechanisms such as learning-by­doing, technological innovation and/or optimization, and economies of scale. The combined effects of these mechanisms are commonly referred to as technological learning. Over the last decades, learning theories in combination with evolutionary economics have led to the innovation systems theory that expands the analysis of technological innovation, covering the entire innovation system in which a tech­nology is embedded. In particular, “an innovation system is thereby defined as the network of institutions and actors that directly affect rate and direction of techno­logical change in society” (Junginger et al. 2008).

In the emerging energy technologies field, there is a strong need to influence both the speed and the direction of the innovation and technological change. With that in mind, policy makers are putting their efforts on lowering the costs of renewable energy sources to support the development of renewable technologies, either through direct means such as government-sponsored research and devel­opment (R&D), or by enacting policies that support the production of renewable technologies. It is well documented (Johnstone et al. 2010; Popp 2002) that both higher-energy prices and changes in energy policies increase inventive activity on renewable energy technologies (Popp et al. 2011).

As noted by Popp et al. (2011), the higher costs of renewable energy technologies suggest that policy intervention is necessary to encourage investment. Otherwise, in the lack of public policy favoring the development of renewable energy, production costs remain too high and they do not represent an option in replacing fossil fuels.

Policies to foster innovation should not only focus on the creation and sup­ply of new technologies and innovations, but also on the diffusion and take-up of green innovations in the market place. Such policies need to be well designed to ensure that they support, do not distort the market formation, and should be aligned with competition policies and international commitments (OECD 2011).

With this purpose, several government policies have been introduced in the energy markets worldwide in an effort to reduce costs and accelerate the market penetration of renewables. Although the effectiveness of alternative policies to encourage innovation still needs to be tested empirically, it is expected that these policies will stimulate innovation in renewable energy (US DOE 2010).

In the next section, some of the policies that could enhance the development of microalgae biofuels are, therefore, revised.