Who will be able to use red diesel after 1 April 2022 and what are the alternatives?

As of 1 April 2022, as part of its wider drive to tackle climate change and air quality, the Government will be restricting those businesses entitled to use red diesel.

Red diesel is cheaper than standard diesel available to the general public at the pumps, as it is for bulk commercial use.  To support business, it is taxed at a significantly lower rate.  Red diesel is exactly the same as standard diesel, but coloured with a red dye to differentiate it (hence the name) and only available from specialist suppliers.  With a few exceptions, it is illegal to use red diesel in vehicles on public roads.

Unfortunately, it is also responsible for 14 million tonnes of CO2 emissions each year and so the Government is making changes to encourage businesses to move from diesel to greener alternative fuel types.

It is being widely reported that those businesses who will not be allowed to use red diesel will find themselves having to pay about 47p more per litre of diesel fuel.  This will hit their margins and/or have an inflationary effect on prices as this additional cost is passed on to their customers.

Who can carry on using red diesel?

Businesses in the agriculture, forestry, horticulture, fish farming, and passenger & freight rail industries and those with non-commercial heating systems will be able to continue to use red diesel.  However, companies outside of those industries running their sites on generators and/or using heavy machinery will no longer be able to do so.  Such companies include those in the construction and waste management industries; industries which ironically also have a part to play in helping the Government hit its environmental targets.

Whilst the Government will claim that businesses have been given plenty of time to make changes, as these plans were first outlined in the 2020 Budget almost two years ago, until recently businesses have been focussed on navigating Brexit and the Covid pandemic.  As a result, various industry bodies are calling on the Government to postpone the changes to give businesses more time to make changes.

What are the challenges of going green?

Even businesses who have had the red diesel changes on their radar for the last year or so, and who have been actively trying to make the changes that Government is seeking to encourage, are finding that it isn’t always easy going green.

By way of example, we act for a client who runs diesel generators to power their commercial site.  The site does not immediately abut public highway, so connecting to the National Grid will involve electrical infrastructure having to be laid across 3rd party owned private land.  Legal easements giving a right to lay such infrastructure on that land are needed.  Not all landowners already have such easements in place.  Even where such easements already exist, as in the case of our client, the utility companies require that the easements contain various bells and whistles that just aren’t usual in a standard transfer granting easements over retained land when part is sold off.  New enhanced legal easements, therefore, are needed.

These new easements can come at a cost, and certainly take time.  Our client has offered to pay a premium for an enhanced easement, yet has been chasing for an agreement in principle for over 6 months now.  Once a deal is agreed in principle (which more often than not transpires to be “the easy bit”….), the legal documentation will then need to be agreed which can take yet more months as you have utility companies, respective land owners and any mortgagees and long leasehold tenants all involved.  Only after that will works commence in actually laying the electrical infrastructure and making the connections which will enable our client to come off the diesel generators.

Our Real Estate lawyers are experienced in advising in relation to required utility easements, transformer chamber leases, solar panel arrangements and other energy-related property matters, so please contact us if you propose improving the energy provision at your site. If you have any questions about this topic please get in touch info@ts-p.co.uk