The search for alternative fuels to alleviate our dependency on fossil-based transport fuels is driven by depleting conventional oil resources and looming climate change induced by anthropogenic greenhouse gas (GHG) emissions. Through a lifecycle approach, we evaluate whether algal biodiesel production can be a viable fuel source once the energy and carbon intensity of the process is managed accordingly. Currently, algae biodiesel production is 2.5 times as energy intensive as conventional diesel and nearly equivalent to the high fuel-cycle energy use of oil shale diesel. Biodiesel from advanced biomass can realise its inherent environmental advantages of GHG emissions reduction once every step of the production chain is fully optimized and decarbonised. This includes smart co-product utilization, decarbonisation of the electricity and heat grids as well as indirect energy requirements for fertilizer, transport and building material. Only if all these factors are taken into account is the cost of heat and electricity reduced, and GHG emissions fully mitigated.