Every few weeks Gordon Elliott drives 22 miles to the Hare and Hounds pub in Marple, Cheshire, collects a barrel of waste cooking oil from his stepdaughter and takes it back to his personal oil refinery in his garage in Leigh, near Bolton. The retired construction site manager then decants the liquid into a machine and adds a few chemicals.

Twenty-four hours later the waste oil has been purified, filtered and refined and is ready to be used in one of his family's two diesel cars. Instead of paying £1.25p a litre at the local supermarket, he has paid 15p to make his own biodiesel. He says he is saving nearly £100 a month - as well as 90% of the greenhouse gases he would normally emit from driving. The cars perform perfectly, the equipment will be paid for within a year and the pleasure of making his own fuel is intense. "It's the principle. I do it for the environment and to spite the exchequer," he said.

Elliott, 79, is part of a cottage industry of people who have turned to making their own recycled "biodiesel" in response to the doubling of fuel prices in just over a year. Companies making biodiesel "reactors" report booming sales and demand for cheaper diesel is outstripping anything they can produce.

"Our business has doubled in size in just the last six months," said David Taylor of Ecotec Resources, the Lancashire company which sold Elliott his machine and which also makes 100,000 litres a year of recycled fuel.

"If you can collect your own oil it works out at about 15p a litre. Otherwise you can buy in your waste oil for about 30p, so you are getting diesel for about 45p. That's a big saving on the forecourt price." He is selling 15-20 biodiesel machines a week and has sold 800 in under a year to taxi firms, hauliers, restaurants and others.

DIY diesel is seen by many as the revenge of the little man on the government, oil companies and the authorities. No one knows how many backroom refineries there are in Britain, but a government study suggested there were around 1,400 small scale plants producing a few thousand litres a year in 2005/6. Since then the price of diesel has more than doubled and the market for machines has risen. People in the industry suggest there are 35 companies refining recycled oil commercially and perhaps 20,000 individuals making private arrangements to collect and process oil from local restaurants, chip shops and food manufacturers.

Since the law was relaxed to allow people to make 2,500 litres a year for their own use, most are working legally, but as the price of fuel rises inexorably, so criminal elements are moving in.

"There are wars going on in London to get the oil," said Tom Lasica, who runs Pure Fuels, London's largest refiner of vegetable oil. "Spanish and German companies are moving in to buy up British used vegetable oil. People are stealing it from each other and selling it abroad. We heard that one fish and chip shop in Southend was broken into just to steal the waste oil."

"A lot of people are making the diesel for new cars. A year ago most people were putting it into old cars. Now the quality of the oil is critical," said Kym Leatt, a director of Envirogroup, which collects, refines and sells 7,500 litres a week in Kent.

"If we could produce five times as much biodiesel we could sell it just like that," said Leatt. "Demand has grown exponentially. Every day we have two or three new businesses asking us. Some companies are saving £25,000 a year. Were selling it to hauliers, taxi firms, fleets of tipper trucks. In the past it would either go down the drain or go to landfill. This is true recycling." He is selling for 98p a litre compared with £1.18-£1.25 at the pumps.

"Demand is going through the roof. We're selling biodiesel machines to the average Joe, universities, schools, restaurants, taxi drivers, absolutely anyone," said James Hygate, a director of GreenFuels. "We've noticed a surge of people driving company cars. They are making their own and then claiming 45p a mile from their firms.

"It's a true grassroots industry. The better quality oil is being taken at source by the small guys. Home scale production is definitely growing fast. Groups of farmers are beginning to grow the crops and make their own diesel."

Demand is growing from institutions and local authorities. The borough of Richmond is this week putting out a tender for a £3.5m contract to run all its 300 council vehicles on recycled vegetable oil for the next three years. The council says it could save nearly £100,000 and reduce its greenhouse gas emissions by several thousand tons.

Back in Marple, Elliott will this weekend be heading for the Hare and Hounds to pick up another barrel. "Everyone wants it. But if I have any left over I'll give it to the lad," he says.