Tennessee lawmakers seek relief for farmers, loggers amid record-high diesel prices

With diesel fuel prices in Tennessee hovering near all-time highs above $6.10 per gallon, two state lawmakers are asking Gov. Bill Lee to temporarily allow farmers and loggers to use cheaper tax-exempt diesel to transport their harvest on public roads.

Tennessee Rep. Rusty Grills, a Newburn Republican, and Bolivar Republican Sen. Page Walley wrote letters to Lee in late September encouraging the governor to allow farmers and loggers to fill their trucks with a cheaper dyed diesel through Nov. 15. 

“All I’m trying to do was just help take a little bit of the burden off of the extreme amount of fuel that farmers are having to use to haul their grain (and other products),” Grills said in a Monday interview.

Farmers and loggers have special permission to purchase diesel fuel without sales and use tax, so long as it is only used for off-road farm machinery and timber harvesting equipment, according to the Tennessee Department of Revenue. The tax exemption reduces the per-gallon price by around 50 cents in Tennessee.

The tax-exempt diesel fuel is dyed red to differentiate it from normal diesel fuel, and it is against the law to use dyed diesel to power vehicles that use public roads, with very limited exceptions.

Taxes collected on regular diesel fuel purchases pay for road maintenance. Off-road farming equipment — like combines, tractors, backhoes and cotton pickers —  does not put wear and tear on public roadways, making it tax-exempt. 

But during harvest season between September and November, farmers and loggers must transport their crops to points of sale in trucks that do traverse public roads, requiring hundreds of gallons of regular diesel fuel. 

Lee’s office did not respond to a request for comment.

Diesel prices in Tennessee reached a record high on Sept. 22 at $6.22 per gallon, according to AAA’s Fuel Prices tracker. A year ago, a gallon of diesel fuel cost an average of $3.43 in Tennessee. 

On Wednesday, the national average price for a gallon of diesel was $6.42. Economists attribute the rising cost mostly to the United States’ war in Iran, with other international market factors like the war in Ukraine contributing a lesser amount.

Grills is a 9th generation farmer who manages his family’s historic Dyer County farm alongside his father and brothers. He said farms cannot wait for more favorable economic conditions; the farmer “either gets his crop out of the field when it’s ready, or he loses it.”

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A combine used in the field can burn up to $1,000 of dyed diesel a day, Grills said, and trucks hauling harvested crops make multiple trips to and from farms over the course of a harvest season. He’s not sure how much money his proposed temporary exemption would save farmers or cost the state in lost tax revenue.

“I’m just looking for any opportunity to cut an expense for the ag sector and the forestry sector,” Grills said. “When the bulk of their fuel usage is in the months of September and October, this is a hard time for fuel to be at an all-time high.”

The fuel price squeeze comes after two difficult years for farmers who faced rising input prices, reduced demand amid trade wars and tariff negotiations, and adverse weather conditions.

Walley said that agriculture and forestry are the state’s largest industries, and these businesses already have access to dyed diesel. 

“We wanted to make it more available to them … so that we can provide them with at least a very modest break in the costs of getting this harvest in,” he said. “That’s not to diminish everybody’s desire for opportunity to pay less at the pump, but this is foundational to our state. That is our largest business and our food supply chain.”

The governors of Alabama, Texas, Nebraska and Louisiana have already issued such exemptions for agricultural and timber producers, drawing skepticism from some lawmakers. The White House is also considering federal actions that could temporarily alleviate fuel price increases, including a potential export ban on U.S. refineries to boost domestic supply that has also been scrutinized by economists.

“The President wants to see gas prices at the pump fall and is evaluating all the options on the table,” a White House official wrote to the Lookout on Monday. “Ultimately, President Trump will make the decision that is best for the American people.”

What contributes to high diesel prices?

Jeff Colgan is a professor of political science at Brown University who specializes in understanding the relationship between energy resources, markets and global politics. Colgan directs the university’s Climate Solutions Lab, which launched an Iran War Energy Cost Tracker in April. 

According to the tracker, the price of diesel is up more than 80% in Tennessee since the conflict in Iran began on Feb. 28, adding $1.1 billion in extra cost for Tennessee residents. That averages out to $397 per household. (The tracker estimates that each Tennessee household has also borne $606 in extra cost for regular gasoline over the same period).

“Of course, not all households are paying directly, right, but we’re all paying for it indirectly because so much of our economy depends on products that are moved by locomotives and trucks that run on diesel and tractors and a million other things,” Colgan told The Lookout. “So we’re all feeling it, although some of us are feeling it a lot more directly. And of course, farmers and loggers are probably feeling it the most directly right now.”

Crude oil barrel prices spiked to $111 in late March and have fluctuated since, hovering between $80 and $100 per barrel for most of the year to date. The per-barrel price is still lower than the 10-year peak of $116 per barrel in May 2022 after Russia invaded Ukraine that February, but that doesn’t necessarily translate to lower gas or diesel prices, Colgan said. 

“Worldwide we are short of refining capacity for diesel,” and refineries that transform crude oil into specific products like diesel may be struggling to get the crude oil inputs they want, he said.

“All of those global dynamics end up shaping the price here in North America, because American refineries that produce diesel want to sell it for the highest price they can get, and if that means exporting it to foreign markets, that’s what they do,” Colgan said.

Ukrainian attacks targeting Russia’s diesel manufacturing and refining capacity have also contributed to high prices, he said, but not nearly as much as the war in Iran.

“Quantitatively, the amount of diesel that’s been affected by the Strait of Hormuz is much, much bigger, probably about three times as much,” Colgan said.

China has also restricted its crude oil imports. The resulting reduced demand likely prevented a bigger price spike, Colgan said, but it also lessened the amount of diesel being produced, driving prices up.

Prices also vary between states and regions depending on how much oil states produce or import, refining capacity, state tax rates and local retailer markups, according to Tom Send, an assistant professor of professional practice in energy finance at Texas Christian University.

Colgan said he understands why lawmakers want to shield consumers from the economic pain of fossil fuel price volatility. But he stressed that banning exports or temporarily waiving fuel taxes are short-term solutions. 

“Banning trade is just generally not an efficient way to go,” he said, noting that reducing dependence on fossil fuels could eliminate some of the country’s vulnerability to global market forces.

“I’m sympathetic, but it is the case that we pay taxes for a reason, and that roads don’t come for free,” Colgan continued. “I think policymakers then have to balance the immediate needs with those longer-term solutions.”