Start preparing for the red diesel reform now!

Air pollution is one of the biggest continuing threats to public health in the UK. Red diesel accounts for around 15% of all diesel used in the UK and is responsible for the production of nearly 14 million tonnes of carbon dioxide a year. 

It is no surprise therefore that the government is targeting fuel usage, in a way to achieve net zero by 2050 and meet UK climate change and air quality targets.  

Many businesses and individuals currently supply and / or use rebated gas oil (red diesel), rebated biofuels and other rebated fuels. The cost of these are significantly reduced by the Government for use in certain machinery, activities and sectors.

However, within the Budget 2020, the Government announced that from April 2022 it will remove the entitlement to use red diesel and rebated biodiesel from most sectors.

The change is happening to incentivise the development and adoption of greener alternatives. Costs will better reflect the harmful impact of the emissions produced, and assist in incentivising users of polluting fuels (like diesel) to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives, or just use less fuel.

What does this mean for users of red diesel?

This change will require many businesses to use fuel that is taxed at the standard rate for white diesel. Current users of red diesel may encounter costs in the following forms:

• Switching to the use of white diesel instead of red diesel.
• Running down or removing red diesel and rebated biofuels from vehicles, machinery and storage tanks.
• Selling back any excess red diesel stock to fuel suppliers.
• Sourcing other alternative fuels.

What does this mean for suppliers of red diesel?

Current fuel suppliers (Registered Dealers in Controlled Oils or RDCOs) may encounter costs in the following forms:

• Reduced customer demand for red diesel.
• The decommissioning of fuel tanks currently storing red diesel or flushing out these tanks if being reallocated for white diesel.

However, fuel suppliers could see a continuing saving as the need to record information for rebated fuel users will decrease.

Where can red diesel still be used?

Following this ban some sectors that remain eligible to use red diesel are:

• For vehicles and machinery used in agriculture, horticulture, fish farming and forestry.
• To propel passenger, freight or maintenance vehicles designed to run on rail tracks.
• For heating and electricity generation in non-commercial premises.
• For maintaining community amateur sports clubs as well as golf courses (including activities such as ground maintenance, and the heating and lighting of clubhouses, changing rooms etc.)
• As fuel for all marine craft refuelling and operating in the UK (including fishing and water freight industries), except for propelling private boats used for pleasure in Northern Ireland
• For powering the machinery (including caravans) of travelling fairs and circuses.

Note: The propelling of private boats used for pleasure in Northern Ireland will require the use of white diesel to propel their aircrafts. A new relief scheme will be introduced for private pleasure craft users in Northern Ireland, so they can claim a relief for the proportion of their fuel that will be used for non-propulsion.

Enforcement

Where changes are not adhered to, Her Majesty’s Revenue and Customs (HMRC) can seize vehicles or machines which have lost entitlement to run red diesel.

HMRC may decide not to seize such vehicles or machines if the fuel remaining in the vehicle, machine, appliance or heating system was taken in for a permitted purpose before this change in law, and the fuel is still being used for the same purpose.

This measure will also extend fuel duty to biodiesel, bioblends and fuel substitutes used in heating, applying the rebated duty rate to non-commercial heating and the full rate of duty to commercial heating.

For more information about the reform of red diesel, guidance can be accessed here.

To Summarise:

• The government announced it will remove the entitlement to use red diesel and rebated biodiesel from most sectors from April 2022. 
• Users of red diesel need to think about and or action the phase out of this fuel in use on their premises / in their operations.  
• Suppliers of red diesel need to be aware of this upcoming legislation change to plan for their future demand of this fuel.