White House mulls range of options to lower diesel costs

Trump administration officials have floated a range of measures to curb soaring diesel costs, from suspending taxes on the fuel to removing restrictions on sales of a dyed, red variety normally reserved for off-road use.

Deliberations were still wide ranging Friday with many ideas still under discussion and a decision on any potential strategy not imminent, according to people familiar with the matter, who asked not to be named because the debate is private.

Conversations have involved vice president JD Vance, who has urged some action to arrest diesel costs and asked about options, Energy secretary Chris Wright, Interior secretary Doug Burgum and Treasury secretary Scott Bessent, the people said.

Dyed diesel or so-called red diesel is typically used by farmers and other off-road consumers and is tax-exempt.

Global diesel markets have been thrown into uncertainty this week as US president Donald Trump voiced support for the idea of curbing American diesel exports. Trump’s economic advisers are analysing the ramifications of a potential short-term ban.

However, Chris Wright has said the administration is working with refiners to voluntarily limit their diesel exports as an alternative to government action.

US diesel prices at the pump have steadied around US$6.50 a gallon, near record levels. Trump’s proposal to halt exports has driven sharp moves in fuel futures this week and faced fierce industry opposition.

Key overseas allies, particularly in Europe, have grown increasingly concerned about the economic fallout from losing access to US supplies at a time when the US-Iran and Russia-Ukraine wars have sapped global fuel availability.

Oil CEOs and other industry stakeholders have encouraged administration officials to pursue a suspension of the federal diesel excise tax, arguing it would provide meaningful price relief for consumers ahead of the midterm elections in November, with none of the drawbacks that would be spurred by an export ban.

But that’s been met by internal debate about how to waive the tax – especially with the House of Representatives in a pre-election recess.

Still, the possibility of an export ban has oil refiners on edge. Some companies are already adding contractual protections in the event a pause on diesel shipments overseas prevents deliveries to foreign buyers, according to people with knowledge of the situation.

A separate industry suggestion to waive or reduce biofuel-blending quotas has been largely rebuffed. The quotas that compel the use of corn-based ethanol and soy-based biodiesel are politically important in America’s heartland.

This week, Republican governors in key US agricultural states have waived restrictions on diesel fuel with harvest season underway.

Louisiana governor Jeff Landry earlier this week declared a state of emergency and rescinded penalties for farmers and loggers using off-road diesel on highways through late October.

Alabama governor Kay Ivey followed suit Thursday, directing law enforcement in her state to stop enforcing restrictions on red diesel for four months. Nebraska governor Jim Pillen issued an executive order Thursday allowing highway-registered vehicles to use off-road diesel without penalty and announced those transporting livestock and produce harvests are eligible for refunds on diesel taxes.

“We’re not going to sit on the sidelines while Louisiana farmers are paying record prices to harvest the crops that feed our families and support our economy,” Landry said in a statement Wednesday. “We have an opportunity to provide immediate relief, and that’s exactly what we’re doing.”

Off-road diesel is chemically identical to the diesel most drivers buy at gas stations across the country, except it is exempt from state and federal excise taxes and cannot legally be used to drive on US highways. To prevent on-road users buying the cheaper form of diesel, it is dyed red so law enforcement can test if a driver is burning the wrong kind of fuel.

The federal tax on diesel is about 24 cents a gallon with state taxes adding, on average, another 36 cents, according to the US Energy Information Administration.

Removing restrictions on sales of off-road diesel could lower prices for farmers to back under US$6 a gallon, a meaningful reduction, but still well short of sub-US$4 a gallon diesel seen before the US and Israel launched the war in Iran.

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