You just nailed it. Food grade cooking oil is now nearly cost competitive with the pump price of diesel fuel. Waste cooking oil is cheaper. However, once government taxes are collected (and they will, once enough fuel is made to dent the pump tax collections) the cost benefit will evaporate.
I found a website that describes the UK experience in biodiesel. I recall that revenoorers would follow cars around that smelled like a doughnut shop and slap them with a ticket for not paying taxes on their fuel (in the 90's IIRC).
So here is an update on taxation of the real world experiment that is the wonderful UK. Sounds rediculous to a Texan, but we have our own challenges with paying taxes on farm-use only diesel (no road taxes on red diesel for farms).
http://www.ravenfamily.org/andyg/vegoil.htm
Tax and legal issues
It is not illegal to use vegetable oil as fuel in the UK.
It is illegal to use anything for road vehicle fuel without paying duty on it. To pay duty on vegetable oil, you have to jump through a couple of legislative hoops. Here's what you have to do:
Register with Customs and Excise
Keep your reciepts
Fill in a monthly tax return
First, get notice 179E and form EX103 from HM Customs & Excise.
Fill in the EX103 declaring the purpose of your business as a private individual using vegetable oil as a motor vehile fuel and stating the description as jerrycan(s) marked SVO in porch/shed/wherever. Attach a letter explaining that the oil is a diesel quality liquid fuel produced from biomass or waste cooking oil, the ester content of which is not less than 96.5% by weight; and the sulphur content of which does not exceed 0.005% by weight. Explain that your feedstock is commercial cooking oil and/or waste cooking oil and give the following details:
Vegetable oil is produced from biomass.
Fatty acids are esters, so the ester content is 99% approx.
The sulphur content is 0.002% by weight (see this assay by German vegoil company Elsbett).
(Important note: I've only just found the Elsbett assay as the supermarkets refused to provide this information under an absurd "commercially confidential" smokescreen, so I'll be writing to HMCE with these details myself. I'll update this page with how I get on)
Remember to give an estimate of your monthly usage: For an individual, this will be small: less than 100 litres. Don't forget to include a contact phone number in case they have any further questions.
The completed EX103 should be sent to HMCE, Mineral Oils Relief Centre, Dobson House, Regent Centre, Gosforth, Newcastle-on-Tyne NE3 3PF.
Every month, you will be sent an HO 930. It's a moderately scary-looking form but filling it is is dead easy. It's detailed in the 179E leaflet:
At the bottom of the list of duty types, make the blank row read: ORR 33589 Biodiesel and then your quantity and calculated duty payable. As I write, duty is 27.1p per litre. Sign and date the declaration, write a cheque to The Commissioners of Customs and Excise, and pop the form and cheque in the post.
Keep your receipts: You're required to keep them for six years. It's simplest if you just keep the paper receipts, stapled together so you have a bundle for each HO930 you've submitted.
And that's it! The forms look opaque but it's not hard really. If you get stuck, Customs' national enquiries help line is open 8am to 8pm Monday to Friday for all general questions on 0845 010 9000 (+44 208 929 0152 outside UK).