But there is another major fuel on the gas station price board, and its national average price currently dwarfs gasoline by more than $1 a gallon: diesel fuel.
“Diesel is what powers trucking. It’s what powers our global economy,” said Joseph Sykora, equity analyst at Aptus Capital Advisors.
But diesel is not just crucial for road transport: it is essential for international transport in general because the engines of heavy-duty vehicles, such as cargo trucks, cargo planes and barges, run on diesel. So, as it becomes more expensive to ship products around the country and the world, the prices of the products transported by those transport vehicles also rise, worsening inflation.
Diesel prices have
much more expensive than gasoline, long before current factors, including the ongoing war in Ukraine, low refinery capacities and post-Covid energy demand, reduced global oil supplies and pushed up prices. But why?
There are three main reasons for the price discrepancy: the transition to cleaner diesel blends, higher state and federal taxes, and diesel supply and demand.
dirty diesel
In 2006, the US Environmental Protection Agency began introducing regulations that significantly limited the sulfur content of diesel fuel. The agency did this because compounded levels of sulfur matter in the air are
toxic to humans and the environment.
And since 2014, the EPA has ruled that all diesel sold and produced in the United States must be ULSD (ultra-low-sulfur diesel), a diesel standard that limits sulfur content to 15 parts per million. Sulfur content regulations have
reduced toxic emissions by at least 90%, according to the EPA.
EPA 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, putting
pressure up about prices
diesel duty
The administration of President Joe Biden recently asked Congress to suspend the federal tax on diesel and gasoline. Although
whether the proposed tax exemption would be effectivedraws attention to the tax itself.
the
federal motor fuel excise tax, which has not changed since 1993, imposes an additional tax of 18.3 cents on gasoline and a tax of 24.3 cents on diesel. Revenue from the tax supports the Highway Trust Fund, a federal fund that finances the construction and maintenance of highways and other public transportation projects.
In addition to the federal tax, each state has its own additional tax on both fuels: the
average diesel tax it is 7.55 cents higher.
Diesel taxes are higher because the main diesel-powered vehicles, freight trucks and buses, are substantially heavier and
deteriorate the roads considerably more than the average car.
diesel demand
Finally, the high price of diesel is attributed to the basic economic principle of supply and demand: insufficient 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 barrel of refined crude oil, between 19 and 20 gallons of gasoline are produced. That number boils down to just 11 to 12 gallons of diesel.
On the demand side, diesel and its molecular siblings
help make, grow, and transport nearly all consumer products. The fuel powers the engines of trucks, trains, industrial machines, construction and farm equipment, buses, generators, home heating systems, ships, and military vehicles.
Gasoline can power American cars, but because diesel fuels the American economy, its price also affects our daily lives.