From red to white: How switching diesel will impact the piling industry
Commonly utilised within many industries, red diesel is an everyday necessity for individuals operating off-road vehicles and machinery. As of next month, red diesel will no longer be available at a rebated rate for use in many commercial applications, including the majority of the construction work. Users of off-highway construction machinery, such as piling rigs, will need to use white diesel instead. Chemically speaking there is little difference between red and white diesel, other than the cetane number and overall sulphur content. However, environmentally speaking, red diesel isn’t the most favourable. It has been estimated that 15% of all red diesel produced is used within the UK. This usage emits close to 14-million tonnes of C02 into the atmosphere each year. Research has suggested that the UK’s construction industry alone contributed 7% of nitrogen oxide emissions and 8% of particulate matter, through its use of red diesel in 2018. A figure that is increasing year on year. The new legislation is intended to encourage red diesel users to adopt more sustainable methods of working, or use less fuel where possible, in a push towards achieving net zero by 2050.
A key question surrounding this change is why? Why will construction no longer have access to red diesel? Although the answer is relatively straightforward, the consequences are not. Simply put, the government have announced that by removing rebated red diesel and biodiesel from most sectors, will help them to meet specific climate change and air quality targets. In an effort to achieve these environmental goals, the government is focusing on two key areas. Firstly, taxing users at the standard rate for diesel in order to reflect the impact of the emissions produced. Secondly, promoting energy efficiency and the use of cleaner alternative fuels.
So why have the government decided to concentrate on construction when other industries, such as agriculture, are able to continue utilising red diesel without obstruction? In simple terms, like everything else, it comes down to capitalism. Despite the government pushing an increase in new infrastructure, and encouraging those working within construction to upskill, invest in new technologies, and plan for the future; choosing to abolish the tax relief and use of red diesel, seems to many, like an extemporaneous decision. It is believed that this transition will ultimately undermine the governments initial enthusiasm for the expansion of the construction industry, and subsequent growth of sub-sectors such as piling. Although recent guidelines have outlined situations when red diesel consumption is permissible, there is still some ambiguity surrounding applications and usage scenarios within other sectors. Subsequently, individuals within the construction sector must now evaluate their operations, consider their eligibility, and ensure they are working compliantly to avoid potential fines.
In terms of sustainability and curbing global warming, of course shifting towards using cleaner and greener fuels is the best move. Over time, the construction industry should begin to scale-back its consumption of fossil fuels, and utilise more sustainable, eco-friendly, and viable alternatives; but at present the technology and infrastructure just isn’t available. Currently, many machinery operators do not have access to low-carbon fuels, or alternative sources of energy, meaning the cost of using white diesel will inevitably be passed onto the customer. In an already competitive space, this transition may be detrimental to many businesses, a factor many people believe government officials have not yet addressed. The construction industry currently employs close to 2.7 million people and is responsible for contributing around 9% to the UK’s GDP. These figures should have provided some gravity to the situation, showing how important the construction industry is to the economy and therefore the government. However, politics and opinions aside, the law is changing, meaning businesses in all effected sectors must comply. We understand that no one likes too much change. It’s a difficult time for everyone involved in the construction and piling sectors, and here at Piling Equipment Ltd we will do our best to ensure the transition is as smooth as possible.
So, what are the financial implications of using white, rather than red, diesel? Currently red diesel attracts a rebate of 46.81 pence per litre (ppl), effectively giving it a duty rate of 11.14 ppl. In comparison, white diesel has no rebate, meaning a duty rate of 57.95 ppl. Based on current rates, the same volume of white diesel will cost an average of five times more in comparison to red diesel. This financial impact will have a significant immediate impact and subsequent long-term effects for many businesses. In addition to the unnecessary project costs and general financial uncertainty, companies must also assume the one-off costs associated with staying compliant. These may include the cost of removing or running down red diesel, purchasing additional tanks or equipment, and sourcing a suitable alternative before the deadline. Moreover, as both red and white diesel become an attractive commodity, higher levels of theft are anticipated. As there is no easy way of distinguishing between the two fuels, construction sites and heavy plant machinery are likely to be targeted. Meaning additional costs of repurchasing fuel and tightening security on site.
Another important question to ask is, what are the key points those in the piling sector need to know? The biggest quantifiable change will be the number of businesses and contractors affected. Furthermore, the amount of machinery, equipment, and vehicles, which will be banned from using red diesel. In addition, red diesel will no longer be permitted for commercial heating and power generators, like those usually found on site. The government has proposed undertaking random on-site checks to ensure machinery and equipment is operating lawfully. In order to combat those continuing to utilise the ‘wrong type of fuel’ significant monetary fines will be handed out to the non-compliant.
As the April deadline approaches, it’s important that the industry begins to reduce its existing stocks of red diesel. It’s not a necessity to remove every trace, but it is important to be able to prove that red diesel has not been utilised or purchased after the deadline date. HMRC auditors will require evidence of previous purchases and current volumes in order to confirm no stockpiling has been taking place. Therefore, retaining receipts is vital, and making a clear plan
We think it’s important to build strong foundations, both on site and in the relationships we have with our clients. In order to maintain our good working relationships, here are a few of the immediate changes that we’ll be implementing at Piling Equipment Ltd:
- Checking the tanks of all hire rigs returning to the yard. If any red diesel is found we will be charging the client for the cost of emptying the tank, as well as the cost of a full tank of white diesel.
- We believe the client is responsible for their own actions. We will be compliant in ensuring that no red diesel is used in our rigs, and we expect clients to act likewise. Failure to do so will result in all consequences and subsequential costs being passed on to the client.
- We won’t be stocking or storing any red diesel in our yard, ensuring no contamination or mix ups.
Just a quick side note. We’re not looking to cause a problem; we’re just protecting our interests. We want to ensure that our machinery and equipment is operating efficiently and compliantly at all times. We don’t want to have to enforce such stringent measures, but to avoid our trust being abused and anyone feeling perturbed it is the most sensible option for all. It is the law at the end of the day!
To learn more about the fuel transition, take a look at the government’s website. If you’d like to speak to a member of our team about this situation, please contact us.