President Donald Trump is preparing a move to loosen restrictions on red dyed diesel, the off-road fuel used in farm and construction gear. People familiar with the plan say details are set for Monday.
Red diesel is the same product as highway diesel, just marked with a dye, and the 24 cents per gallon federal excise tax does not apply to it. If more on-road use is allowed without penalties, that effectively trims the tax bill in some cases. It would not shave costs for machines that already run on tax-free red diesel, like harvesters, tractors, and excavators.
The potential savings would show up for pickups and other vehicles on public roads. In places where farmers already put red diesel in pickups, the change would largely remove the penalty risk.
There is a catch. Red diesel is pulled from the same nationwide diesel pool, and inventories are at a record low for this time of year as demand climbs into the fall. Refineries are already pushed to the limit to maximize diesel output. That is why simply relaxing enforcement will not fix the supply squeeze, which the administration has identified as a key goal.
Distribution is another hurdle. The dye is typically injected at fuel terminals, and the current retail footprint skews small, with sales concentrated at co-ops and smaller stations. It is unclear how quickly that could expand to interstate truck stops, and some truck plazas and distributors may balk at offering the dyed product through existing equipment.
There is also a risk of robbing Peter to pay Paul: if motorists chase the cheaper product, farms and worksites could find themselves competing for the same fuel. Some states that loosened rules limited access to farmers and foresters to avoid that outcome.
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Diesel prices have jumped during conflicts in Russia and the Middle East that throttled refining capacity and cut global product flows. In the US, the average pump price was $6.32 a gallon on Sunday, AAA reports, down from the record $6.53 reached last month. On Monday, Trump used social media to point to refinery closures in Russia and in California as drivers of higher costs.
Washington is layering on other steps. On Friday, Group of Seven countries and their partners agreed to release up to 100 million barrels from emergency oil and diesel stockpiles after a push from the Trump administration to tap those reserves.
Some farm-state lawmakers had urged a ban on US diesel exports to force more supply into the domestic market. After the G7 move, Trump said he would not curb foreign sales. Separately, at least 10 governors have either suspended state fuel taxes or relaxed rules on using dyed fuel on highways; ClearView Energy Partners says those states together represent about one-third of special fuels sales in 2025. There is precedent for a federal step too: after Hurricane Dorian in 2019, the IRS paused penalties for dyed fuel sold for road use, paired with an EPA fuel waiver.
Diesel is the economy's workhorse, powering farm equipment, moving freight, and keeping some rural communities on the grid, so higher prices filter into the cost of many goods. That is hitting farmers hard in the middle of harvest. Trump is scheduled to be in Grand Island, Nebraska, on Monday to boost Senator Pete Ricketts's reelection effort and energize GOP voters, including farmers and ranchers.
If the red diesel change lands, the main financial shift may be who captures the benefit. With supplies tight, Chris Kennedy of Bloomberg Economics noted, "That means refiners and fuel sellers are likely to absorb almost all of the added benefit." For everyday budgets, that means the policy tweak could nudge prices at the margins without creating more fuel.
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