Trump’s red-dyed diesel order sounds like a tax cut. Economists say it’s a 24-cent IOU that could raise prices for farmers

Moments later, Trump signed an executive order onstage that temporarily allows red-dyed diesel on public roads and defers the federal excise tax normally owed on highway fuel through Dec. 31. Despite Trump calling the fuel “tax-free,” the tax hasn’t gone away—at least not yet. The order directs the Treasury Department to defer payment without interest or penalties, and to explore ways to eliminate the deferred bill entirely.

The move comes as diesel prices hover near record highs, squeezing truckers and farmers in the middle of harvest season. It also follows the administration’s retreat from a proposed ban on U.S. diesel exports, which Trump said last week, “We were never going to do.”

What is red-dyed diesel?

Alan Krupnick, a senior fellow at Resources for the Future and director of its Industry and Fuels Program, explained the fuel to Fortune: “It’s the same as regular diesel, but dyed red so inspectors can make sure it’s being sold only for off-road uses, [such as] for agricultural vehicles.”

What’s different about red-dyed and regular diesel, then, aside from the color? “It is [sold] tax-free to give agriculture and other heavy, off-road vehicles and other users a break,” Krupnick said.

Gilbert Metcalf, a visiting professor at the MIT Sloan School of Management and a former deputy assistant secretary for environment and energy at the U.S. Treasury Department, described it the same way. “This is the same diesel that you can buy at a gas station; it just has red dye in it. That’s to indicate that it’s not subject to the federal diesel tax.”

How much could drivers actually save?

That federal tax is 24.4 cents per gallon: a 24.3-cent excise tax plus a 0.1-cent “Leaking Underground Storage Tank” fee, according to the U.S. Energy Information Administration. On a 250-gallon fill-up for an 18-wheeler, that works out to about $61. The White House’s claim that truckers will save more than $100 per fill-up assumes states suspend their own diesel taxes as well, which the order encourages but can’t require.

Measured against the pump price, the federal tax is a sliver. Diesel averaged about $6.20 a gallon nationally the week of Oct. 5, per the EIA, down from a peak of roughly $6.53 in late September. Before the U.S. and Israel launched their war against Iran in late February, the national average was about $3.76, according to AAA. A 24.4-cent break amounts to about 4% of today’s price—a modest savings for everyday motorists, and perhaps not much more for heavier users in trucking, farming, and other industries.

Why economists say it won’t move prices

The bigger problem is that a small cut in per-gallon costs does nothing to change the basics of supply and demand. Metcalf sees little potential for the executive order to have any meaningful impact.

“I don’t see this having really any impact on supply … On the supply side, it’s not going to lead to any more diesel coming online, all it does is change some of the diesel that’s out there [to be] usable by anyone,” Metcalf said. “But that doesn’t change the total amount of diesel that’s out there. And if you look at U.S. refineries, they’re operating at near record capacity levels. There’s no ability to process more or create more diesel. That’s the supply side.”

Could farmers end up paying more?

“On the demand side,” Metcalf continued, “if we shift some of that diesel into road use, what does that mean? It means that the diesel is going to be more expensive for farmers and other off-road use, like construction.”

In other words, opening red-dyed diesel to highway drivers may slightly reduce on-road fuel costs while actually raising the effective price paid by the off-road users the fuel was meant to help. Farmers who already burn red-dyed diesel in their tractors and combines don’t gain a new tax break from the order.

Diesel prices have surged primarily because of two overseas conflicts: the war with Iran, which has disrupted tanker traffic through the Strait of Hormuz, and the Russia-Ukraine war, where Ukrainian drone strikes on Russian refineries prompted Moscow to restrict its own diesel exports. With global supply tight and U.S. refiners already running hard, the system has little slack.

Only a return to more stable global production and refining will have a true and lasting impact on domestic diesel prices. A temporary tax deferral is unlikely to deliver much relief, and it may even backfire if it drives up fuel costs for farmers, construction firms, and other off-road users.