In a bid to lower historically high fuel prices for farmers in the midst of harvest, President Donald Trump signed an executive order to temporarily allow off-road diesel for highway use.
While state and national farm groups were quick to praise the move, it remains to be seen how helpful it will be, and it may be causing more confusion than anything else.
Diesel prices surged this fall, peaking at $6.53 per gallon nationwide during the week of Sept. 21, according to the U.S. Energy Information Administration. At the same time last year, diesel averaged $3.75 per gallon. The increase has been driven by disruptions in global fuel supplies related to the U.S.-Iran conflict and Russia’s war in Ukraine.
What it does do
Highway or “on-road” diesel is subject to federal and state fuel taxes. Off-road diesel, commonly used for agricultural, construction and forestry equipment, generally isn’t subject to those taxes. Off-road diesel is dyed red so that law enforcement can identify it to enforce penalties and back taxes for on-road use. Farmers typically purchase it in bulk and store it in tanks on their farms.
The executive order allows the federal tax on off-road diesel used on highways to be deferred, and directs the Secretary of the Treasury to “explore pathways to eliminate the obligation to pay the deferred taxes.”
It also directs the secretaries of transportation and agriculture to increase access to dyed diesel for farmers and fleets, although it’s not clear how this would work.
What it doesn’t do
The executive order doesn’t eliminate the federal excise tax on diesel fuel, which is 24.4 cents per gallon. The American Soybean Association, which celebrated the order, raised concerns about what happens to that deferred tax.
The group urged the Trump administration to ultimately waive these deferred taxes for farmers. It also asked that farmers be held harmless for residual dyed diesel fuel that may remain in fuel tanks after the order expires.
The order also doesn’t change state rules around highway use of dyed diesel. It’s still not legal in most states, including Pennsylvania, Ohio and West Virginia, to run red diesel in vehicles on the road.
Ohio has already temporarily suspended its state fuel tax (38.5 cents per gallon for gasoline and 47 cents per gallon for diesel) through legislative action. But that does not make the use of federally untaxed, red-dyed diesel legal on Ohio roads.
The Ohio Farm Bureau joined other ag commodity groups in sending a letter to Gov. Mike DeWine asking him to “temporarily suspend state restrictions and penalties on the use of red-dyed diesel for legitimate agricultural activities.”
More than a dozen states, including Alabama, Arkansas, Indiana, Iowa, Louisiana, Missouri, Nebraska, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee and Texas, have suspended state-level penalties or enforcement of dyed-diesel use on highways. Many did so before Trump’s executive order.
A spokesman for Pennsylvania Farm Bureau said they are working with several state agencies to get clarification on the application of Trump’s executive order. Pennsylvania’s state tax on undyed diesel is more than 74 cents per gallon.
The order doesn’t make more diesel exist in the U.S. and doesn’t make off-road diesel available at retail pumps. In fact, trucking and fuel industry groups warned truck stops and gas stations to proceed with caution before filling their tanks with dyed diesel fuel.
“First, the tax is still owed, so there’s limited upside,” the Society of Independent Gasoline Marketers of America and the National Association of Truck Stop Owners said in a note to their members, reported NBC News. In addition, “the logistical challenges outweigh any visible upside: Residual dye lingers in tanks and fuel systems.”
