Why is Diesel More Expensive Than Gas?

Article Summary:

Due to excessive regulation, global demand, and the oil refining process for fuel, diesel is currently more expensive than gasoline in the United States.

Diesel is the primary fuel oil used for industrial purposes and commercial trucking. The difference between diesel fuel and gasoline starts with the refining of crude oil. According the U.S. Energy Information Administration, about 45% of a typical barrel of crude oil is refined into gasoline — an additional 29% is refined into diesel fuel, with the remaining 26% used to produce plastics and other products.

However, diesel is actually easier to refine than gasoline, so one must figure that the manufacturing costs are less as well. The quicker it is to produce, the cheaper it should be on the open market as a final product, correct? Despite this fact, diesel is higher on a cents-per-gallon basis in the U.S. This is due to a combination of global demand outside of the U.S. and current national energy policy in the form of regulation and taxation.

Diesel and the supply chain

Modern-day economics stipulates that prices will rise and fall on commodities with supply and demand. When supply goes up and demand goes down, prices will fall; when supply contracts and demand trends upward, then prices will rise.

One of the things that confuses people when they see higher diesel fuel prices versus gasoline is that the demand for diesel in autos is negligible compared to cars that operate on gasoline. The reason for this lies in the international demand for diesel, particularly in industrial production.

Use of diesel fuel in industrial processes

The primary use for diesel on a worldwide scale is for industrial capacity. Most labor and energy-intensive factories use diesel to operate. Likewise, these factories are primarily located outside of the U.S., including those in China, India, Japan, and South Korea. In fact, 44% of the projected spikes in diesel demand, from 2020 to 2025, are concentrated in the Asia-Pacific region, as the numbers below show.

United StatesAsia Pacific
Growth Rate-1.50%-0.50%Growth Rate1.00%1.30%

*Gasoline and diesel numbers are millions of barrels per day.

As Asia has far more people than anywhere else in the world, the population heavily relies on public transportation. Diesel is the most commonly used fuel for buses and subway lines. Furthermore, most of the labor-intensive and energy-intensive production of goods is now concentrated in the Asia-Pacific region. As production skyrockets to meet severe deficits in the supply chain, demand for diesel fuel has soared. This demand, particularly in Asia, is a huge contributing factor to the overall increase in the cost of diesel around the world.

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Although diesel is cheaper to produce, it has a significant downside: Diesel emits more carbon dioxide than burning gasoline, thus contributing to global warming.

Due to its “more polluting” classification, the U.S. gradually enacted emissions regulations legislation that led to further restrictions on diesel vs. traditional gasoline, due to the carbon emissions produced from the latter.

Ultra-low sulfur diesel

Ultra-low sulfur diesel (ULSD) is an extra clean-burning fuel that was introduced into the U.S. market between 2006 and 2010. Low sulfur diesel has a sulfur component maximum of 15 parts per million. Regular diesel, on the other hand, can have as high as 5,000 parts per million as a sulfur component.

This sulfur component has a very negative impact on pollutants and incurs a negative impact on climate change. Thus, in the mid-2000s, the EPA devised new regulations that state all:

  • Highway diesel fuel supplied to the market be ULSD.
  • Highway diesel vehicles must use ULSD.
  • Nonroad, locomotive, and marine (NRLM) diesel fuel must be ULSD.
  • NRLM engines and equipment must use this fuel (with some exceptions).

The extra refining process in removing sulfur from diesel is complicated and expensive, resulting in increased manufacturing and refining costs. Thus, these regulations have substantially contributed to the higher price of diesel compared to other oil fuels, as you can see from the graph below.


In addition to the legislation regarding and demand for diesel, the average price of the fuel oil is more expensive because of high state and federal taxes.


As of January 2022, the federal tax on diesel is 24.4 cents per gallon. The federal tax on gasoline is 18.4 cents per gallon. This represents a whopping 24.5% tax differential on diesel vs. gasoline.

The tax was implemented in 1993, just as the climate/pollutant debate was starting to take significant shape. The idea, like cigarette taxes, was to discourage use and thus have Americans burning cleaner “fossil fuel.”


There is an even greater difference in diesel prices between states that exercise their own unique fuel taxes. Pennsylvania is by far the most pronounced — the taxes on fuel are already the highest in the U.S. at 57.6% per gallon (excluding federal tax). This might already seem very high, but convert it to diesel and the tax is an eye-watering 74.1%. At the state level, this is a nearly 23% premium on diesel vs. gasoline.

This isn’t always the case, however. Alaska is the lowest, with an 8.95% tax on both diesel and gasoline. Arizona and Oklahoma are tied for the next cheapest, at 19.0% for both types of fuel. However, the majority of states impose taxes on diesel that are either higher or on par with gasoline. Based on population demographics in the U.S., it’s likely that you live in a state with higher diesel taxes versus gasoline taxes.

Pro Tip

If you are looking to buy a diesel vehicle with a diesel engine, it’s important to consider all of the costs and benefits. Make sure that diesel engines are worth the cost rather than paying regular-grade gasoline prices.


Is diesel the most expensive fuel?

Diesel is not the most expensive fuel. In fact, it’s technically cheaper to refine than gasoline if you leave out the sulfur regulations.

Why is diesel not popular in the U.S.?

Diesel is not as popular in the U.S. because it’s considered “dirty” and thus taxed higher. Other than a diesel truck, most people use cars that run on regular gasoline instead of diesel-powered vehicles.

Are diesel vehicles faster than gas-powered ones?

Technically speaking, gasoline burns faster and is thus able to produce more horsepower. However, diesel has a higher energy density, and in some regards works better for certain vehicles.

Key Takeaways

  • Geopolitics, taxes, and regulations are all contributing factors to the increased price of diesel in the U.S.
  • Most of the diesel demand in the future will be located in the Asia-Pacific region, contributing to increased demand.
  • From a regulatory standpoint, ultra-low sulfur diesel is one of the main factors that makes its production and sale more expensive.
  • Federal taxes are higher for diesel than gasoline, as are most state taxes.
View Article Sources
  1. How much tax do we pay on a gallon of gasoline and on a gallon of diesel fuel? — U.S. Energy Information Administration
  2. Diesel Fuel Standards and Rulemakings — U.S. Environmental Protection Agency
  3. State Motor Fuel Tax Rates — Federation of Tax Administrators
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