Low-Energy Fridays: There’s More to a Diesel Ban than Basic Economics

Basic economics teaches us that when supply goes up, the price of a good or service typically goes down as long as demand stays the same. On that logic, one might assume that President Trump’s favorable talk about banning diesel fuel exports is because such a move would increase domestic supply while lowering costs.

That would be wrong. 

The trouble with understanding basic economics is that it leads us to believe that domestic and international trade are simple “if X, then Y” scenarios. I’ve been guilty of this myself, which is why many of my college economics exams came back with comments like “You forgot to account for additional factors.”    

So what are the additional factors that change the expected conclusion of the diesel export ban? Simply put, a ban would not increase domestic supply. 

This is because the United States already produces enough diesel to meet the country’s demand. Approximately 70 percent of U.S. production is enough to cover the domestic market; the remaining 30 percent is exported outside the country. In fact, America’s refining system is large enough that it’s able to provide 20 percent of the world’s supply traded by sea.

With a 30 percent excess, a ban would likely force the industry to slow its production.  In the first 30 days there might be some price relief as supplies pile up, but prices will likely begin to climb again after that—possibly beyond what they are now. 

Production slowdowns would also mean diesel prices wouldn’t be the only fuel costs creeping up. This is because the process of refining crude oil produces several types of fuel at once. It’s not as simple as one barrel of crude gets you one barrel of diesel (or another type of fuel such as gasoline or jet fuel). Refining crude oil for diesel is part of the same process that produces the fuels that make most of our cars go and keep our planes in the air. That’s why a nationwide refinery slowdown wouldn’t just mean less diesel—it would mean less gasoline and jet fuel, too. 

Another key part of this is efficiency. Going back to basic economics, a key part of keeping costs low is ensuring efficiency, which is essentially producing more goods in less time. Efficiency has helped keep U.S. fuel prices low compared to other countries; however, the diesel export ban would make our refining systems less efficient and thus more expensive. 

If none of that resonates with you, then consider it from a different angle: In 2024, then-President Biden paused new export approvals of the export of liquid natural gas (LNG). Trump and his allies lambasted the move, with Trump labeling it as part of Biden’s “war on American energy.” Why then would Trump suddenly think that banning a different fuel would produce different results? Mike Sommers, CEO of the American Petroleum Institute, summed it up nicely: “Bad policy doesn’t become good policy just because the administration changes.” 

Therein lies the rub. The lack of consistent, market-driven policies harms our ability to ensure a robust economy. Industries like predictability, whether they agree with certain policies or not. So when Trump says an LNG export ban is bad, it stands to reason that he would not support a diesel export ban. Yet here we are considering a ban.

Instead of chasing short-term political gains that may not even pay off, what we actually need is a consistent, long-term approach that allows all aspects of the energy sector to compete on a level playing field. With this, efficiency and innovation, coupled with consumer preferences and demand, can drive our policies—not arbitrary decisions aimed at short-term wins.