Diesel Digest: The story behind dyed diesel

Apr 25, 2017 by Capt. Jeff Werner

Diesel Digest: by Capt. Jeff Werner

In Belfast, Northern Ireland, a man with a previous conviction for an IRA attack on police was found guilty of fuel laundering. Customs officers seized two tankers, 20,000 liters of laundered fuel and 140 bags of material used to bleach the diesel.

In Dublin, news sources report that and fuel laundering is a major problem and there is a substantial loss to the state in taxes. An independent report estimated that the Irish Exchequer lost 239 million euro last year through illegal laundering.

What on Earth is happening on the Emerald Isle? The government of the Republic of Ireland reports it is aggressively tackling fuel laundering by organized crime. Officials note, “Gas oil is marked with fuel dyes and chemicals in order to differentiate it from road diesel. Fuel laundering is an illegal process to remove the markers. Once the marker is removed, it can be sold as road diesel, taking advantage of the resulting higher prices.”

Many countries around the world add a colored dye to their diesel fuel. Typically, this dyed fuel is not taxed, or it is taxed at a lower rate than un-dyed, “clear” diesel. The added dye differentiates the intended use of the fuel for taxation and gives government authorities a visual cue if the fuel is being misused from its intended purpose. And as both the UK and Ireland have found out, removing that dye can be a profitable enterprise.

In the United States, according to the Internal Revenue Code:

“The role of the motor fuels excise tax has changed since its origination in 1932. Initially, the tax was among several deficit reduction tools. Increases in the “gas tax” were used in combination with other excise tax increases to finance emergency spending during wartime over the next two decades. In 1956, federal gasoline (and diesel) tax receipts were transferred to the newly created Highway Trust Fund.”

This fund is used for road construction and other surface transportation projects. From a diesel fuel standpoint, it makes sense that vehicles such as trucks and buses, which use the nation’s highway system, should pay for its upkeep. Non-highway users of diesel, such as farm tractors, heavy construction equipment, emergency electrical generators and boats, should not have to shoulder the burden of federal excise taxes to fund highway improvements.

In the early 1990s, the Internal Revenue Service began to consider methods of making diesel fuel excise tax collection easier. At the same time, the Environmental Protection Agency mandated adding blue dye to some fuel. The purpose of the dye was to flag diesel that did not meet the EPA sulfur standards for use in highway vehicles.

In 1994, the IRS ruled that all tax-exempt diesel fuel would be dyed red, and the EPA’s blue dye went by the wayside. Currently, all diesel used in the United States for “off road” purposes such as marine is dyed red.

This year, the federal excise tax on diesel fuel for highway use is 24 cents a gallon. Florida also taxes diesel fuel without dye at a rate of 32 cents a gallon. That means in Florida, the red-dyed, off-road diesel used aboard a yacht should cost about 56 cents a gallon cheaper than clear diesel.

In Ft. Lauderdale, a bulk delivery of 5,000 gallons of fuel to a yacht by tanker truck or fuel barge rounds out to $1.80 a gallon. If a captain could drive the yacht down U.S. Highway 1 and pull into the cheapest gas station, he would pay $2.50 a gallon for on-the-road diesel.

Therefore, the red diesel is 70 cents cheaper than the clear diesel, and 56 cents of that is due to the tax exemption. The remaining 14 cents covers the infrastructure costs of the gas station.

Similarly, higher fuel prices at a marina are justified to pay for the costly fuel delivery system required for vending fuel on a body of water. It must be built to high construction standards to avoid leaky pipes and fittings that could cause a fuel spill into the water and an environmental disaster.

When bunkering diesel elsewhere in the world, a yacht captain will find a variety of colors in the fuel that gets pumped on board. France is blue, Greece is black and the UK is red. But an enterprising engineer shouldn’t even think about bleaching that fuel and selling on the black market to supplement their yacht’s maintenance budget.

Capt. Jeff Werner is a 25-year veteran of the yachting industry as a captain on private and charter yachts, both sail and power, and a certified instructor for the RYA, MCA, USCG and US Sailing. He also owns Diesel Doctor (MyDieselDoctor.com). Comments are welcome below.