Most of the anthropogenic emissions of carbon dioxide result from the combustion of fossil fuels for energy production. Photosynthesis has long been recognized as a means, at least in theory, to sequester anthropogenic carbon dioxide. Aquatic microalgae have been identified as fast growing species whose carbon fixing rates are higher than those of land-based plants by one order of magnitude. Physical Sciences Inc. (PSI), Aquasearch, and the Hawaii Natural Energy Institute at the University of Hawaii are jointly developing technologies for recovery and sequestration of CO{sub 2} from stationary combustion systems by photosynthesis of microalgae. The research is aimed primarily at demonstrating the ability of selected species of microalgae to effectively fix carbon from typical power plant exhaust gases. This report covers the reporting period 1 April to 30 June 2002 in which PSI, Aquasearch and University of Hawaii conducted their tasks. Based on the work conducted during the previous reporting period, PSI initiated work on feasibility demonstration of direct feeding of coal combustion gas to microalgae. Aquasearch continued their effort on selection and characterization of microalgae suitable for CO{sub 2} sequestration. University of Hawaii continued effort on system optimization of the CO{sub 2} sequestration system.