I spent a bit of time today reading up on Biodiesel. George Monbiot makes several seemingly good points against the concept, that using crops to create fuel puts Western oil use in direct competition with food production in developing countries, and that a large demand for a cash-crop like palm oil could cause massive deforestation. Indeed, most biodiesel in Europe at the moment appears to be made from oil crops such as rape seed.
However, the hope seems to be biodiesel from algae. The US had a 20 year research programme called the Aquatic Species Program, which published a report in 1998. I'll admit to only have read the 30 page summary rather than the full technical detail in the report. The report commented “Even with aggressive assumptions about biological productivity, we project costs for biodiesel which are two times higher than current petroleum diesel fuel costs.” - current crude oil prices are about three times 1998 levels.
I'm a bit suspicious of one thing though; although the energy input was solar, the production levels were achieved by forcing "waste" CO2 through the algae. That risks a shell game, where CO2 from powerstations is miraculously removed, and cars burn environmentally friendly biodiesel. OK, so the same carbon gets used twice, but that's not a huge saving overall. Apparently atmospheric CO2 can be used; but that reduces growth rates, hence production rates, hence potential income.
http://www.oilgae.com/ appears to be quite a good overall resource for algal biodiesel, and quite a few companies around the world appear to be researching commercialising the technology. However, I suspect there's quite a bit of development left to do, as an unnamed British biodiesel producer says in an article on algal biodiesel; “If it's so easy to use algae, don't you think we'd all be doing it”.