Trump plans to ease limits on tax-exempt diesel variety

President Donald Trump is preparing to ease limits restricting the use of a tax-exempt variety of diesel, his latest bid to pare costs for the essential fuel ahead of the November midterm elections.

The Trump administration is expected to unveil the plan targeting so-called red dyed diesel on Monday, according to people familiar with the matter, who asked not to be named before a public announcement.

The plan effectively would allow more widespread use of red or dyed diesel, which is generally available for off-road purposes, such as in farm and construction equipment.

Because red diesel is exempt from the federal excise tax of 24 cents per gallon, enabling its use in on-road vehicles without penalties could translate into an effective tax break in some cases. While the move wouldn’t directly lower operational costs for harvesters, tractors, excavators and other off-road equipment that already runs on tax-exempt red diesel, it is seen potentially cutting the expense to run pickup trucks and other on-road vehicles.

And where farmers in some cases already are using lower-taxed red diesel in pickups, the planned shift would mean they aren’t running the risk of penalties.

The administration’s approach marks yet another effort to address costs for diesel that have surged amid wars in Russia and the Middle East that pared refining capacity and reduced the shipment of petroleum products globally. In the US, retail prices for diesel averaged $6.32 per gallon on Sunday, according to auto club AAA.

Even though that’s down from an all-time high of $6.53 set last month, farmers, truckers and other users are still paying more than one-and-a-half times what they were on Feb. 28, when the US and Israel launched attacks on Iran and the fuel cost just $3.76 a gallon.

Trump in a social media post Monday blamed refinery closures — both in Russia and in California — for driving up fuel costs.

But relaxing enforcement of red diesel limits won’t address the core issue driving up prices today and boost supplies of the fuel, a chief Trump administration objective.

Supplies of red diesel, which is chemically identical to on-road diesel save for the added dye, come from broader US diesel fuel stockpiles. Domestic diesel supplies currently sit at their lowest-ever seasonal levels as demand picks up into the fall.

Domestic refiners are already running at full capacity, maxing out diesel production. “That means refiners and fuel sellers are likely to absorb almost all of the added benefit” of relaxed red dye enforcement, said Chris Kennedy at Bloomberg Economics.

There’s also some risk the planned change could backfire by straining fuel supplies at the expense of farms and construction sites. Creating an extra incentive for motorists to fill on-road vehicles with the tax-exempt variety could create more competition for the fuel. Some state programs liberalizing limits on red diesel have been limited to farmers and foresters, potentially reducing that risk.

The current network for delivering red diesel is limited, with sales generally happening at farm cooperatives and smaller service stations. Dye is typically added through injection terminals, and it’s not clear how swiftly or easily that could make its way to interstate trucking networks, Kennedy added. Truck stations and distributors also may be unwilling to offer red diesel through existing infrastructure.

Because diesel serves as a workhorse fuel — powering farm equipment, propelling shipping and supplying power to rural communities — the higher prices have rippled through the economy, boosting costs for an array of consumer goods.

That’s caused economic hardship and frustration in America’s heartland, where farmers are being hit with high fuel costs during the fall harvest season. Trump is set to visit Grand Island, Nebraska, on Monday, part of a bid to bolster the reelection prospects of Republican Senator Pete Ricketts and help drive GOP supporters, including many farmers and ranchers, to the polls in November.

At least 10 governors have already lifted state fuel taxes or loosened limits on the use of dyed diesel in highway vehicles. According to ClearView Energy Partners, the 10 states together account for about a third of special fuels sales in 2025.

A federal intervention has happened before, ClearView said in a research note. In the wake of Hurricane Dorian in 2019, the Internal Revenue Service suspended penalties for the sale of dyed diesel for on-road use — a move taken in tandem with a fuel waiver from the Environmental Protection Agency.

Trump’s planned action comes on top of a Friday agreement by Group of Seven nations and their partners to release as much as 100 million barrels of emergency oil and diesel stocks. The decision followed an intense pressure campaign by the Trump administration aimed at persuading European and other nations to tap emergency diesel stockpiles.

“Diesel prices are coming down, but we have more work to do,” Agriculture Secretary Brooke Rollins said in a social media post on Monday. Trump “is taking action to deliver short-term relief for farmers and ranchers, including prioritizing diesel in the release of 100 million barrels of crude oil. Diesel prices have already dropped about 15 cents per gallon over the last few days.”

Separately, Rollins told Fox Business that Trump would likely make an announcement on relief for farmers later on Monday. Rollins didn’t elaborate but stressed the administration’s focus on lowering diesel costs.

Farm-state lawmakers had been pressuring Trump to ban US diesel exports in a bid to provide at least short-term price relief. But following the G7 decision Friday, Trump said he wouldn’t restrict foreign sales of the fuel.