Trump’s ‘red diesel’

On Monday evening, one month ahead of the US mid-term elections due to take place on 3 November, President Donald Trump signed an executive order to allow the use of ‘dyed diesel’ on the roads until the end of the year. This is the diesel used in agriculture, identical to ordinary diesel but coloured red to indicate exemption from the road excise duty of 24.4 cents per gallon. This is the second time in less than a week that Trump has attempted to lower the cost of diesel in the United States, which, according to the Energy Information Administration, stood at an average of $6.38 per gallon at the end of September, whilst about a week before the war with Iran it was around $3.81.

On 2 October, in fact, after threatening to ban diesel exports even to Europe, Trump secured a large release of 100 million barrels of crude oil and diesel stocks from G7 allies, with a ‘substantial’ portion of diesel already released in the first twenty days. This latest executive order, however, whilst appearing on paper to be a strong electoral move, is likely to have little impact on prices at the pump. The executive order is, in fact, binding only on the federal government, whilst excise duties and bans on road use in individual US states remain in force. Texas, for example, permits the use of dyed diesel on the road whilst retaining its own excise duty, whereas in other states its use remains prohibited. Consequently, large hauliers, who cross several states in a single day, are unlikely to use it precisely to avoid the risk of fines as they move from state to state (given that the colour remains visible for several refuelling stops). The order also provides for the deferral of excise duty payments, not their abolition (which would require an Act of Congress). Finally, unlike the release of G7 strategic reserves, the order adds virtually not a single barrel to the entire US market, where diesel is expensive due to scarcity and a shortage of refined products.