By Jarrett Renshaw and Nicole Jao
Sept 28 (Reuters) - The White House is considering regulatory relief that would allow broader sales of red-dyed diesel as part of an effort to bring down soaring prices, a move that could allow some buyers to avoid the federal fuel tax, according to two people familiar with the discussions.
The red-dye proposal has emerged from days of administration deliberations as one of the leading alternatives to a diesel export ban, which has been discussed as global supply disruptions
drive prices to record levels. President Donald Trump has backed a ban, but that has faced widespread opposition from the oil industry and other parts of the business community.
The Trump administration is looking for ways to bring down diesel prices without disrupting fuel supplies or creating additional costs elsewhere in the economy, under growing pressure to ease fuel costs as November's midterm elections approach and Trump's economic approval ratings remain under strain.
The administration has also been seeking voluntary commitments from major refiners to limit diesel exports, Reuters reported last week, as officials weigh alternatives to a government-imposed export ban. Energy Secretary Chris Wright has contacted executives at several major refiners to gauge their willingness to engage in such an action.
A White House official said no final decisions have been made, but the president is weighing all options to lower prices.
Trump told a Fox News reporter on Sunday while attending the Presidents Cup golf tournament in Illinois that he is "very seriously" weighing a ban on diesel exports.
“That can oftentimes lead to a little bit of an increase in gasoline for cars, so we’re looking at it very seriously. We may do it,” he added.
RED DYE PLAN
The tax proposal would expand the circumstances under which red-dyed diesel, which is generally reserved for off-road uses such as farming and is exempt from most federal fuel taxes, could be sold for broader use, the people said. The administration is weighing the proposal as Trump seeks to ease fuel costs that have climbed sharply in recent weeks.
Under current federal rules, the tax on highway diesel is 24.4 cents per gallon, while dyed diesel is exempt from that tax but remains subject to a 0.1-cent-per-gallon charge that funds the federal Leaking Underground Storage Tank Trust Fund.
Allowing wider sales of dyed diesel could reduce the federal tax burden on eligible purchases, although the impact on the price paid by consumers would depend on how the relief is structured and how much of the savings is passed through by fuel sellers.
Farm Belt lawmakers are also pressing the administration and Congress to act as high diesel prices squeeze farmers heading into harvest, when fuel is a major operating cost. US Representative Ashley Hinson, a Republican running for the Senate in Iowa, has called for the House to return to Washington before the midterm elections and pause diesel exports and suspend the federal gas tax, while also proposing a diesel relief program for farmers and truckers.
Patrick De Haan, head of petroleum analysis at GasBuddy, said the proposal would not address the supply imbalances that have driven up on-road diesel prices. Farmers already use untaxed dyed diesel, he noted, while allowing truckers to use the fuel could save them the federal tax without increasing diesel supplies.
"I can't think that this would have any impact at all," De Haan said. "It's simply diesel with red dye added that's not taxed. It does nothing to improve supply or impact price."
The idea comes as several states have moved to relax restrictions on dyed diesel amid surging fuel costs. Alabama, Louisiana and Nebraska have each taken temporary steps in recent days to allow broader use of the tax-exempt fuel or suspend state penalties, while Alabama and Louisiana have sought additional relief from the federal government.
The potential move comes as the national average price of diesel has climbed above $6 a gallon, putting more pressure on farmers, truckers and other businesses that rely on the fuel.
(Reporting by Jarrett Renshaw; Editing by Daniel Wallis)
