Where do they get their water?

The problem with water isn't there isn't enough ... the problem is that not enough is stored. You might have noticed that there was open water in the area once permaculture was established. They were not introducing additional water into the system, they were saving and reusing the water which is naturally occuring. The next video is about 20 minutes in length but it illustrated the following point. Even in drylands there is a substantial amount of water but it is lost through evaporation. Grazing animals are necessary in the ecosystem in order to reduce the vegetation and to fertilize it and increase soil organic matter.

Also you forgot one thing in your calculation: "What happens to the biomass?"

Algae occurs naturally, human production is insignificant in comparison.

In 2008, algae covered 5000 square miles and in 2015 ... 13,500 square miles of algae formed near Qingdao, a city in the Shandong province of China and again in 2017. Algae is part of earth's natural process to maintain homeostasis. Water accounts for almost 1/2 of the naturally sources of
CO2. Algae is part of the cycle which sequesters CO2 and releases it slowly (most often in the form of methane).