Why is Diesel Fuel More Expensive Than Gasoline?

We hear this question a lot, especially now that passenger vehicles with diesel engines are finally making it to the U.S. The answer has nothing to do with how the fuel is produced, but rather with government decisions and economic conditions.

Europe used to export diesel fuel to the U.S., but for years forward-thinking European governments have been promoting diesel — a more efficient fuel than gas — with lower taxes and other incentives. The result has been a spike in the number of diesel vehicles there; in Great Britain and Italy, more than 50% of all cars run on diesel.

Therefore, say bye-bye to diesel fuel exports to the U.S. Without the added capacity of European refineries, U.S. diesel prices ballooned this summer when everyone realized the supply of diesel had become much more limited than it was even a few years ago.

The U.S. also taxes diesel 6 cents more per gallon (24 cents compared to 18 for gasoline). The original thinking was that diesel-powered vehicles like large trucks would tear up roads and require more spending on infrastructure. Now, with clean-diesel passenger vehicles on the road, this policy doesn’t make much sense in terms of lowering CO2 emissions and promoting efficiency.

Finally, diesel fuel is the lifeblood for big freight-haulers: Barges, trucks, trains — most all heavy vehicles run on diesel or some heavy petroleum distillate. When the economy is firing on all cylinders, they all move more stuff, and that movement requires a lot of fuel. Now that we’re in the current economic downturn, diesel prices have fallen accordingly as activity has slowed. Diesel, even more so than gasoline, is bound tightly to the speed of the economy.

Right now, the U.S. doesn’t have much refining capacity for diesel — something to keep in mind when the economy recovers and you’re thinking about buying that Jetta TDI or Mercedes-Benz Bluetec.

Why Does Diesel Fuel Cost so Much? (ConsumerReports.org)

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