Red Diesel Tax Reform

From the 1st April 2022 legislation comes into force which will restrict the entitlement to use red diesel and rebated biofuels across a number of industry groups.

The user groups affected include logistics, waste, construction, mining, manufacturing (ceramics, steel, timber, vehicles etc), road maintenance, airport operations, oil and gas extraction, plant hire or refrigerated transport businesses.

Red Diesel otherwise known as ‘gas oil’, ‘off road diesel’ or’ tractor diesel’ is fuel intended for use in vehicles other than road vehicles and is therefore taxed at a lower rate.  Red diesel accounts for around 15% of diesel use in the UK and is responsible for the production of nearly 14 million tonnes of carbon monoxide a year. 

The drive behind the changes, is to support the UK government’s targets to bring all greenhouse gas emissions to net zero by 2050. Those users of red diesel who fall within the sectors outlined above will no longer be able to use red diesel and will have to switch from using red diesel to white diesel. Both products are the same but Red Diesel is dyed red due to its restricted nature to help identify illegal use.This equates to a 420% taxation increase from 11.41ppl for red diesel to 57.95ppl for standard white diesel.

The changes could mean cost increases for businesses within the sectors outlined above and those which form part of the onward supply chain. For the waste management industry, operating costs for processing waste at waste transfer stations and landfill sites could be affected whilst the industry transitions to using more energy efficient plant and equipment.

Counteracting any cost increases would depend on the speed at which alternative electric powered equipment and more efficient diesel machines can be developed. In an article by Letsrecycle, Jacob Hayler, the ESA’s Executive Director commentedDecarbonising these vehicles and applications is challenging and won’t be driven by the economics of this tax change alone, but we are optimistic that, through collaboration between operators and vehicles suppliers, through R&D with trials being widely facilitated by our members, and through new procurement policy drivers, we will start to see viable solutions come to market over the next few years, contributing to our sector’s pursuit of net-zero by 2040.”

There has been a range of views from across the waste management sector about the impacts of these changes, with some associations pushing for a more phased approach to introducing the tax, to no avail from HM Treasury. 

Tony Windsor, Owner and Founder of the Windsor Integrated Services Group commented: ‘Whilst as a business we support the move to more energy efficient practices within the waste management industry, there will undoubtedly be some interim pain as the industry strives to level up on the use of energy efficient plant and machinery. As a business we will continue to work closely with our supply chain partners to minimise the impact of these changes across our waste management services and ensure we continue to provide our clients with the most efficient and sustainable solution.”

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