Trump’s red-dye diesel tax waiver could have limited impact on prices – here’s why

President Trump’s executive order allowing a more widespread use of tax-exempt red-dye diesel is meant to lower the cost burden on Americans – but it may not help prices at the pump much, according to experts. 

The special fuel has the same exact chemical composition as diesel fuel, but it’s dyed red to denote its tax-exempt status and is typically meant only for off-road farming equipment like tractors.

Long-haul drivers could save a substantial amount of money using the cheaper fuel, potentially passing those savings along to groceries – but there are several roadblocks standing in the way.

Patrick De Haan, head of petroleum analysis at GasBuddy, estimated that few truckers – perhaps just one in 100 – will actually be able to take advantage of the tax-exempt fuel because it’s not usually available at gas stations.

“The problem, first of all, is that dyed diesel is a specialty product. Generally it appears in rural areas where there are many farmers, not at gas stations,” De Haan told The Post.

Off-road diesel can be found around the country, but fill-up locations are spread out and rarely found near cities, according to a map by C NRG Fleet, a fueling management company.

The closest location to New York City, for example, is in North Bergen, New Jersey, and there’s not a single red-dye stop on Long Island.

“Also, most consumers don’t know that the red-dye diesel is exactly the same as ultra-low sulfur diesel with an added dye. So adoption becomes more challenging,” Ramanan Krishnamoorti, vice president for energy and innovation at the University of Houston, told The Post.

During a rally Monday night, Trump signed an executive order allowing drivers to use the tax-exempt dye, claiming the average trucker “will save over $100 every time they fill up” and farmers “will also save millions and millions of dollars.” 

He argued the tax waiver “will also drive down the cost of all goods, including grocery prices, very substantially.” The vast majority of consumer goods in the US are transported via heavy trucks that run on diesel, so higher diesel costs can easily bleed through to the grocery store.

National average diesel prices hit $6.32 a gallon on Tuesday – up 71% from $3.68 a year ago, according to AAA.

In some states, customers could soon see an up to 60 cent price reduction on diesel as a result of the executive order, according to De Haan – but it could vary greatly state-by-state.

The rollout “all depends on how fast this gets adapted,” said Krishnamoorti, adding he anticipates “a whole bunch of states interjecting and indicating federal overreach.”

Executive orders do not automatically trump state laws, so state officials will still have control over whether or not they decide to waive taxes on diesel fuel. Tax rates on red-dye diesel also vary across states.

Since the tax status could vary across state lines, that means hauling companies – whose drivers frequently travel cross-country to deliver goods – won’t be inclined to purchase the red-dye diesel, since they’d be risking penalties in areas that don’t waive the taxes.

If Congress approved a nationwide suspension of the diesel tax, it would lead to average savings of 24.4 cents a gallon in every state, De Haan said, but this proposal hasn’t been floated by policymakers.

“Truckers who don’t cross a state line may be able to use this. Farmers and construction companies are already using dyed diesel,” De Haan told The Post. “The announcement is very loud but the potential impact isn’t really a needle-mover.” 

Another concern is the language used in the executive order, which authorizes highway use of the tax-free dyed diesel – but says it is “deferring the federal diesel excise tax through the end of the year,” per a White House announcement.

The question is whether those diesel taxes will be fully canceled at the end of the year, or if customers will be slapped with a bill down the road.

Drivers may also be unwilling to purchase the red-dyed diesel since it could leave a residual color behind in their gas tank. 

Once the temporary waiver is lifted, truckers who previously used the red-dye diesel could risk getting pulled over by officers who spy leftover red-tinted emissions from the exhaust tailpipe.