Most drivers today are focused on the high cost of filling up their tanks with regular fuel.
But there’s another important fuel on the gas station price board, and its nationwide price average currently eclipses gasoline’s by more than a $1 a gallon: diesel fuel.
“Diesel is what powers trucking. It is what powers our global economy,” said Joseph Sykora, an equity analyst at Aptus Capital Advisors.
But diesel isn’t only crucial for trucking — it’s fundamental to international transport as a whole because the engines of heavy-load vehicles like freight trucks, cargo jets and barges run on diesel and its chemical siblings. So when sending products all over the country and the world becomes more expensive, the prices of the products those transport vehicles carry also rises, worsening inflation.
Diesel prices have long been more expensive than gasoline, well before today’s factors including the ongoing war in Ukraine, low refinery capacities and post-Covid energy demand crunched global oil supplies and pushed up prices. But why?
There are three primary reasons for the price discrepancy: the transition to cleaner diesel blends, higher state and federal taxes, and diesel’s supply and demand.
Dirty diesel
In 2006, the US Environmental Protection Agency began phasing in rules that significantly limited the sulfur content of diesel fuel. The agency did this because aggravated levels of airborne sulfur matter are toxic for both humans and the environment.
And since 2014, the EPA has regulated that all diesel sold and produced in the United States must be ULSD (ultra low sulfur diesel) — a standard of diesel which limits sulfur contents to 15 parts per million. Sulfur content regulations have reduced toxic emissions by at least 90%, according to the EPA.
The EPA’s regulations greatly benefit the environment. But lowering the sulfur content of diesel has led to lower energy density (less fuel economy per gallon) and raised production costs at the refinery, placing upward pressure on prices.
Diesel’s duty
President Joe Biden’s administration recently called on Congress to suspend the federal tax on diesel and gasoline. Regardless of whether the proposed tax holiday would be effective, it calls attention to the tax itself.
The federal motor fuel excise tax, which has not changed since 1993, imposes an extra 18.3 cent tax on gasoline and a 24.3 cent tax on diesel. Revenue from the tax supports the Highway Trust Fund, a federal purse that finances the construction and maintenance of highways and other mass-transit projects.
In addition to the federal tax, each state has its own additional duty on both fuels — the average diesel tax is 7.55 cents higher.
Diesel taxes are higher because the primary vehicles with diesel engines, freight trucks and buses, are substantially heavier and deteriorate roads considerably more than the average automobile.
Demand for diesel
Finally, diesel’s steep price is attributed to the basic economic principle of supply and demand: not enough supply, combined with barrels and barrels of demand.
On the supply side, diesel is produced at a reduced rate compared to gasoline. In the US, for every one barrel of crude oil refined there are about 19 to 20 gallons of gasoline produced. That figure drops to just 11 to 12 gallons for diesel.
On the demand side, diesel and its molecular siblings help manufacture, grow and transport nearly all consumer products. The fuel powers engines in trucks, trains, industrial machines, construction and farming equipment, buses, generators, home heating systems, ships and military vehicles.
Gasoline might power American cars, but because diesel powers the American economy, its price also affects our daily lives.
Correction: An earlier version of this story misstated the chemicals that power cargo and barge fuel. Trucks run on diesel fuels, while planes and barges run on its chemical cousins.
-CNN
