The U.S. government is considering broader sales of red-dyed diesel as one possible way to reduce diesel costs, following a record national average price and growing pressure from higher transportation and agricultural expenses.

The average price of diesel reached $6.53 per gallon on September 22 before easing to $6.45. That remained $2.77 higher than a year earlier. California recorded an average of $8.40 per gallon, according to the source material.

Diesel costs affect freight, farming and the prices of goods moved across the country. The increase has also become a political concern as the administration and Republican lawmakers face an affordability issue ahead of the midterm elections.

Red-dyed diesel could reduce taxes at the pump

Red-dyed diesel is generally used for farming and other off-road applications. The fuel is colored to distinguish it from taxable highway diesel and is subject to a substantially lower federal tax.

Highway diesel carries a federal tax of 24.4 cents per gallon. Dyed diesel is exempt from that tax but remains subject to a 0.1-cent-per-gallon charge. Wider access to the fuel could therefore function similarly to a temporary diesel tax holiday for some buyers.

However, the proposal has not been finalized, and its potential effect remains disputed. GasBuddy analyst Patrick De Haan noted that farmers already use red-dyed diesel, meaning expanded sales might provide them with little additional relief. Since the measure would not increase fuel supplies, the broader effect could also be limited.

For drivers of diesel-powered trucks, the maximum theoretical reduction would be about 24.3 cents per gallon if the entire federal tax difference reached consumers.

Export restrictions remain under consideration

The administration had also explored banning diesel exports as a means of increasing domestic availability and lowering prices. That idea drew criticism from oil companies and U.S. allies, which could face higher diesel costs if American supplies were restricted.

The American Petroleum Institute welcomed the possibility of expanding red-dyed diesel sales. Its support came after the group criticized a potential export ban, arguing that restricting exports would not provide a quick solution and could push U.S. prices higher.

The group also pointed to Republican lawmakers who characterized the export proposal as ineffective or poorly executed. Whether the government will proceed with broader red-dyed diesel sales remains uncertain.