I think you've missed the latter half of the sentence, though: "differentiated rates of taxation may be applied by Member States, under fiscal control, in the following cases". In other words, the UK is allowed to charge differentiated rates (one rate for road use, one rate for canal use) only in the four circumstances that follow.
The only one of those four that might qualify, as you point out, is the product quality. But the problem there is that, if the UK starts to differentiate by product quality rather than by intended use, you'll get several million motorists filling up their cars with red diesel - and hang the side-effects.