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SATURDAY, OCTOBER 3, 2026 | SPECIAL REPORT & ANALYSIS
SPECIAL REPORT | TEXAS DYED DIESEL
Texas Clears Dyed Diesel for the Highway — but the Tax Bill Still Comes Due
Gov. Abbott’s Sept. 28 disaster proclamation opens off-road fuel and heavier loads to farmers and truckers, but the state fuel tax, a 30-day clock and unresolved federal questions leave producers with homework in the middle of harvest.
Analysis · October 3, 2026
With Texas diesel prices near record highs, Gov. Greg Abbott on Sept. 28 issued a statewide disaster proclamation that lets farmers, ranchers and truckers run red-dyed, off-road diesel on Texas roads, raises the allowable weight for fuel, crop and timber loads, and suspends the state’s Texas Low Emission Diesel (TxLED) rules to the extent the Environmental Protection Agency authorizes. Plains Cotton Growers, Inc. (PCG) calls it welcome initial relief for producers facing a financial squeeze — but its guidance to members makes clear the order changes where dyed fuel can be burned, not what it costs once it is.
“Texas agriculture and freight run on diesel. Record prices put both industries at risk and raise costs for every Texas family.” — Gov. Greg Abbott
PCG CEO Kody Bessent laid out the group’s reading of the order in the organization’s newsletter this week, along with answers to the questions members have been asking. PCG says it has been in contact with the governor’s office, the relevant state agencies and state legislators to pin down the details. What follows draws on that guidance, the governor’s disaster proclamation and his letter to EPA Administrator Lee Zeldin.
What the proclamation does
Statewide reach. The order covers all 254 Texas counties. It suspends state restrictions — and the associated penalties — on using dyed diesel on public roads. It also waives state oversize/overweight permitting for vehicles carrying fuel, agricultural or timber products, allowing gross weights up to 95,000 pounds, though bridge postings and other transport limits still apply.
The federal ask. In his letter to Zeldin, Abbott requested a temporary waiver of federal ultra-low sulfur diesel requirements and of TxLED, which layers extra fuel specifications on 110 counties including Dallas, Tarrant, Collin and Denton. He cited the Clean Air Act’s emergency fuel-waiver provision, Section 211(c)(4)(C)(ii). The TxLED piece of the proclamation only takes effect to the extent EPA signs off, so that part of the relief hinges on Washington (see Table 1).
Table 1. Provisions of the Sept. 28, 2026 Texas disaster proclamation and related EPA request.
The price backdrop. AAA put the Texas average diesel price at $5.86 per gallon on Sept. 28, the day of the proclamation — down slightly from a record $5.97 a week earlier, but up from $5.22 a month before and roughly $3.30 in early February (see Figure 1).
Figure 1. Texas average retail diesel price, selected 2026 dates (AAA).
The tax catch
State tax still owed. Dyed diesel is normally sold free of motor fuel tax because it is meant for off-road use. PCG members asked whether running it on the highway changes that, and the answer is that the tax follows the use. As PCG notes, clear highway diesel carries Texas’ flat 20-cents-per-gallon tax at first sale or use, plus the federal government’s 24.4 cents. The Texas Comptroller said the declaration lifts the restrictions on putting dyed diesel on highways but does not waive the 20-cent state tax owed when it is used in a taxable, on-highway manner under Texas Tax Code Section 162.203. The Comptroller added that it is still exploring how taxpayers can remit that tax (see Table 2). Abbott’s office has maintained that his disaster powers reach regulatory statutes and rules, not taxes.
Table 2. Per-gallon tax on diesel used on Texas highways, clear vs. dyed under the proclamation.
The federal question. The state order does not address the federal 24.4-cent excise tax, and IRS guidance generally provides penalties for knowingly using dyed fuel for a taxable purpose. During the February 2021 winter-storm emergency, the Comptroller obtained a temporary IRS waiver of those penalties so off-road diesel could be used on the road statewide; no comparable federal action had been reported as of this writing. 24/7 Wall St., citing Reuters, reported the White House is considering red-dyed diesel tax relief. Until something is issued, operators putting dyed fuel in on-road equipment should assume both tax obligations stand and keep careful gallon records. We also discuss this and other topics in our Oct. 3 Weekend Updates (link).
The 30-day clock
Harvest runs longer than the order. PCG’s first question from members was whether relief would outlast 30 days, since harvest is still underway across much of the state. Under Section 418.014 of the Texas Government Code, a disaster proclamation lasts no more than 30 days, but the governor can renew it for successive 30-day periods as long as emergency conditions persist. The initial window runs to about Oct. 28; any extension into the back half of the cotton harvest will require a renewal (see Figure 2).
Figure 2. Initial 30-day term of the proclamation and potential renewal windows.
Warranty and fuel quality
Color isn’t the issue. Asked whether red diesel voids an engine warranty, PCG’s advice is to read the individual warranty and check with the dealer first, because terms vary. The color of the fuel does not by itself necessarily void coverage. What can cause problems — dyed or clear — is fuel that is old, contaminated or substandard: water in the tank, low cetane, high sulfur content, or dust, rust and clogged filters.
Bottom line
For Texas producers, the proclamation is supply-and-logistics relief, not tax relief. Dyed fuel and heavier loads can move legally on Texas roads now, but the 20-cent state tax is still owed on on-road use, the federal tax and penalty picture is unresolved, TxLED relief waits on EPA, and the whole package expires around Oct. 28 unless renewed. Watch for Comptroller remittance guidance, EPA’s answer to the Abbott/Zeldin waiver request, any IRS action, and the renewal decision as harvest stretches on.
AG POLICY & MARKETS DAILY | SPECIAL REPORT | TEXAS DYED DIESEL — SATURDAY, OCTOBER 3, 2026
