As global oil supplies continue to tighten and fuel prices soar, the governor of Texas declared a state of emergency over a shortage of diesel fuel.
Declaring a state of emergency can unlock a government’s ability to temporarily modify certain policies in order to protect the general public: in the case of Texas, this includes waiving restrictions on what’s known as dyed diesel.
Governor Greg Abbott of Texas issued an emergency notice on Monday.
“The shortage of diesel fuel poses an imminent threat or occurrence of harm to the public health and safety in the State of Texas,” the notice says.
“A shortage of diesel fuel will impose harmful effects upon the agriculture and ranching industries by increasing the price per acre to achieve similar yields, reducing investment in farm and ranch machinery, and driving up supply chain expenses.”
Abbott also states that truckers and construction companies are facing higher costs that are making it difficult to maintain operations or spend on new projects.
This also comes after U.S. President Donald Trump threatened to ban exports of U.S. diesel as supplies come under strain as a result of the repeated closure of the Strait of Hormuz from his war with Iran.
Opher Baron, a distinguished professor of operations management at the Rotman School of Management, says the U.S. is trying to maintain its presence as a superpower by using its leverage on energy wherever it can.
“If you look at some of the international actions of the U.S. regime over the last 12 months or so, they are very much focused on the energy market,” says Baron.
“Obviously, before the midterm elections coming up next month, there is pressure on this main goal.”
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Abbott says his government is taking specific steps to suspend certain regulatory measures, including the use of dyed diesel fuel, weight limits on commercial shipping, and some standards for diesel emissions in order to provide financial relief amid a global diesel squeeze.
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Baron says these measures could provide some short-term relief for American consumers and businesses, but whether or not they are sustainable affordability solutions is unclear.
Dyed diesel is, literally, reddish in colour because of an additive used to identify it as fuel used mainly for off-road purposes, such as agriculture and construction, which does not require a motor-fuels tax.
Easing restrictions on the use of dyed diesel on the road allows for businesses to tap into their off-road fuel stocks for commercial road transport purposes and bypass retail fuel tax costs, where they would otherwise face record-high diesel prices.
The proclamation also states that vehicles loaded with fuel, agricultural or timber products weighing up to 95,000 pounds will not be required to carry additional state permits for being oversized or overweight.
Finally, the governor formally requested the Environmental Protection Agency to waive certain rules for diesel fuel that apply in Texas, which he says will remove some limits on which diesel can be sold, and he requested a waiver to allow more fuel to reach pumps in the state.
“What needs to be considered is, does this have any second round impacts on other parts of the economy? Because if you’re going to put a policy in place that provides relief in one place, but provides strain in another, then it’s worth questioning the effectiveness of that policy,” says economist Marc Ercolao at TD Economics.
“In this case of Texas, it very well may have local positive impacts in the diesel space. But should that have other impacts in other fuels, you might just end up at an offsetting point where it was neither a benefit nor a detriment.”
Could similar measures work in Canada?
Canadian consumers and businesses are also grappling with higher gas and diesel prices, and the Bank of Canada has warned that the longer these oil and gas prices remain elevated, the more likely those higher prices will be reflected in other areas like food, housing, and just about everything else.
The federal government has extended a pause on the fuel excise tax until the end of January 2027, which brought immediate relief at the pumps for both regular and diesel fuels as well as jet fuels when it was introduced earlier this year. The tax will then return at a 50 per cent rate from Feb. 1 through March 31, 2027.
But diesel prices have been climbing faster than regular gasoline.
In Canada, the national average for diesel fuel is hovering around C$2.60 per litre, according to Natural Resources Canada, up from $2.35 last month, and about $1.54 a year ago.
The Canadian national average price for regular gas is about $1.75 per litre, according to the Canadian Automobile Association, up from $1.71 last month and $1.35 a year ago.
Conservative Leader Pierre Poilievre has proposed eliminating all tax on diesel sales until at least Canada Day by extending the full fuel excise tax cut until July 1 of next year and removing the GST from the purchase of fuel.
Ercolao says niche quick-fixes, like in Texas, may not be as necessary in Canada because of the country’s refining capacity, or ability to produce more diesel for consumption, and tax relief measures may be more effective.
“Most of the relief measures that we have seen here have been through taxes and domestic consumption, like being able to meet our domestic demand through our own production and refining,” says Ercolao.
“As far as the current tax relief goes, it’s definitely providing that relief at the pump, and for diesel as well. Those are net positive for consumers and businesses.”
– with a file from The Canadian Press
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