Why is the Government banning red diesel and what will this mean for businesses who rely on it?
The government’s changes to red diesel eligibility came into force on the 1st of April 2022, restricting the use of red diesel in most sectors. Read on to find out if your business sector is affected by the changes and what the alternatives are available moving forwards.
Back in 2019, the UK government set out its plans to cease its contributions to climate change by becoming carbon neutral by 2050. These plans were, at the time, some of the most ambitious timelines set by any nation around the world.
Since then the government has set into motion a number of policies designed to pave the way to a carbon-neutral future.
For industries that rely on red diesel and white diesel, the changes to long-standing tax and duty rates have been designed to incentivise users to develop and adopt cleaner alternative fuels.
What is red diesel?
Red diesel, also commonly called gas oil or cherry red, is regular diesel that was exclusively used in off-road machinery and engines, primarily by agricultural, marine and construction sectors before the 1st of April 2022.
Red diesel is different from white or “road” diesel in two ways: its colour, and the rate at which it’s taxed. Chemically, the two fuels are identical, and release identical levels of greenhouse gasses when burned.
Its colour is changed through the use of a red dye that’s used to differentiate it from unrebated fuel. The dye doesn’t change the properties of the fuel in any noticeable way, but does coat the inner workings of machinery which allows law enforcement agencies to track the illegal use of the fuel.
The largest and arguably most impactful difference between the two is their tax rate. In January 2022, red diesel users paid 11.14 pence per litre (ppl) in fuel duty, which is considerably less than the 57.95ppl paid by white diesel users. This discounted tax rate effectively provided an 81% discount.
From an environmental standpoint, this creates a range of issues, not least that red diesel were are paying less than single car owners for the harmful emissions they produce. After all, 1 litre of diesel releases the same emissions regardless of whether it is used on a road or off it.
In order to encourage users to switch away from this carbon-heavy fuel, the government ended its 10-year freeze on red diesel fuel duty.
Red diesel in the 2020 budget
The government announced a number of changes to its approach to diesel taxation in Budget 2020. The changes with the widest impact were the new restrictions on red diesel use, which have been applied by sector rather than on a case-by-case basis and took effect from April 2022.
Affected businesses were no longer eligible for the red diesel tax rate, meaning they have to use fuel that is taxed at the standard rate for white diesel. The intention behind this change is to offset the damaging environmental impact of the fossil fuel, and to encourage users to switch to more environmentally friendly alternative fuels.
Who can use red diesel now?
Please note that this list was updated in April 2022 to reflect the changes in legislation.
Red diesel sees continued use across both commercial domestic settings, including:
- Rail transport
- Community amateur sport clubs and golf courses
- Sailing, boating and marine transport (excluding private pleasure craft in Northern Ireland)
- Travelling fairs and circuses
- Fuel used for non-commercial purposes – electricity generation and heating
- Agriculture, horticulture, fish farming and forestry
The government has acknowledged the significance of red diesel to the agricultural, forestry, horticulture and fishing industries. As these essential industries are so intrinsically linked, they were likely treated as a united group when it came to the changes in red diesel eligibility.
Retaining red diesel entitlement for passenger and freight rail is also a calculated move, as it helps providers keep costs low. This in turn will reduce the UK’s reliance on roadgoing transport such as private cars, vans and lorries which reduces their cumulative environmental impact.
The continued protection of domestic users of red diesel for heating is also welcome. The costs associated with linking off-grid homes to the national network are prohibitive and, in most cases, counter-productive from an environmental standpoint.
This isn’t to say that this eligibility won’t change in the future, however; the government has already stated that the use of red diesel in all of these settings will come under review as alternative fuels and power sources become available.
Why was red diesel use banned for some industries and not others?
The decision to ban certain industries from using red diesel wasn’t an arbitrary one; it’s a move that’s backed up by some startling statistics.
- Red diesel is responsible for 14 million tonnes of CO2 released every year
- The construction and infrastructure sectors alone were responsible for 7% of NOx emissions and 8% of PM10 emissions in London in 2018.
Red diesel’s impact on the environment will be reduced as its widespread use is restricted, whilst the additional duty paid by sectors who move to white diesel will be reinvested into green initiatives. Businesses will also be more motivated to move to more environmentally-friendly fuels, such as HVO fuel.
Red diesel consultation period
The UK government implemented a consultation period that ran between July 2020 – 1 October 2020 to give red diesel users the opportunity to voice their concerns about the change in red diesel eligibility.
Governing bodies evaluated all responses and considered any claim made by a sector to retain their red diesel entitlement. The summary of responses was published a few months later, followed by draft legislation from HMRC in 2021.
Why did the government wait until April 2022?
The government recognised that whilst these changes will help the UK meet its environmental obligations, they still presented a sizeable challenge to UK businesses. The delay gave business owners time to prepare their operations for the switch to a new fuel type, or to increase operational efficiencies to reduce fuel consumption.
Existing duty reliefs
The budget didn’t contain details of any proposed changes to existing 100% fuel duty relief for specific sectors, even where these relate to sectors that will no longer be permitted to use red diesel.
For example, the port or seagoing vessels that are currently entitled to Marine Voyages Relief will continue to be so, specifically the Royal National Lifeboat Institution (RNLI) even after they switch to white diesel from April 2022.
However, VAT will still be applicable at the current rate of 20% rather than the reduced 5% VAT rate that’s applied to all purchases of red diesel up to 2300 litres.
Rebated biofuels tax changes in the 2020 budget
Biodiesel, both in its undiluted and gas oil blend forms, is also subject to the changes outlined in the 2020 budget.
What does this mean for biodiesel users?
Biodiesel users will have to pay the standard road biodiesel duty rate, which currently stands at 57.95ppl.
The only exceptions to these new rates are the sectors that have retained their entitlement to use red diesel, namely agriculture, forestry, horticulture, fish farming, rail and non-commercial heating.
Whilst the changes may seem counter intuitive – biodiesel is a cleaner alternative to diesel after all –these plans ensure that non-road users of both diesel and biodiesel are subject to the same rules.
Enforcing changes with red diesel users
Those sectors that will lost their access to red diesel will be free to switch to white diesel, but it wasn’t as simple as using red diesel on the 31st of March 2022 and topping up with white diesel on the 1st of April 2022.
Red diesel contains a dye that is designed to stain the interior of engines, tanks and pipework that uses it. This allows law enforcement agencies to track and trace illegal use of the fuel, but also means that users switching after April 2022 could be at risk of being falsely accused of misusing red diesel.
Whilst the government hasn’t provided any official guidance to users, they have asked that they don’t flush out their systems. This is to prevent accidental environmental damage through the unsafe disposal of red diesel.
Fuel suppliers under the new rules
Fuel suppliers were asked to make some significant changes to their operations in order to facilitate the tax rate changes.
The government proposed that suppliers replace their fuel tanks or flush out all tanks, pumps and fuel transport equipment until no traces of the red diesel dye remains. This will help HMRC and law enforcement agencies ensure compliance with the new tax laws, but will incur a cost to fuel suppliers.
Suppliers are also being asked to monitor the use of red diesel going forward and ensure that all fuel supplied to a sector losing entitlement burns all low tax diesel before this date.
What are the penalties for using red diesel after April 2022?
Under the law as it stands, the illegal use of red diesel is a criminal offence. Perpetrators can be prosecuted, and face heavy fines or even jail time if found guilty.
Guidance was provided to help current red diesel users who lost their entitlement from April 2022. They were advised to run down existing stocks of red diesel before the 1st of April 2022 and move to either white diesel or a different fuel source, such as HVO fuel by that date.
If vehicles, tanks and machinery are found to contain red diesel or the red dye marker after this date the fuel could be seized by the authorities, along with any machinery that could contain the fuel. The user will have the opportunity to appeal if they believe they are still entitled to use the fuel.
Where do we go from here?
The writing is on the wall for fossil fuels in the UK; whilst it will be difficult to eliminate their use entirely (if not impossible), the government will use all the tools at its disposal to reach their zero carbon goals.
We support the government’s ambitious deadline for becoming a carbon neutral economy by 2050. Climate change is a real and present threat to the world as a whole, and here at Nationwide Fuels we’ve already taken steps to reduce our own carbon footprint through initiatives such as offsetting our delivery mileage and introducing a number of green fuels to our product portfolio.
However, we are calling on the government to rethink its approach to alternative fuels, clean diesel alternatives and biodiesels.
There are clean diesel alternatives available on the UK market, such as HVO fuel, which eliminate the challenges faced by first generation biofuels whilst providing a drastically reduced emissions profile. By treating these fuels in the same way as fossil diesel, the government is creating barriers to their adoption and choosing tax income over reduced emissions.
If the government was to treat greener fuels such as HVO based on their emissions, the UK could drastically reduce its emissions in the short term and more comfortably reach its carbon neutral goals.
HVO fuel is the future for diesel users
We are here 24/7 to provide help, support and advice to our customers on how these changes will affect their sectors and the options they have moving forward, such as HVO fuel.
HVO fuel is the synthetic diesel alternative that diesel users have been waiting for, combining vastly reduced emissions with the reliability of fossil diesel. But HVO fuel also has unique characteristics all of its own.
These include its extended shelf life of up to 10 years – it contains no fatty acid methyl esters (FAME), leaving it less susceptible to bacterial attack than diesel which has an average shelf life of 12 months.
It also has drop-in functionality, meaning that users can switch to HVO fuel without making costly engine modifications. Plus, with EN 15940 and ASTM D975 certification and a wide range of OEM approvals, HVO fuel won’t let you down.
The removal of red diesel eligibility across multiple sectors removes the barrier for the adoption of alternative, greener fuels. It is our hope that under the new rules, diesel users will take the opportunity to switch to lower carbon fuels.
Information updated in April 2022.