Assessing the level of cross-border fuel tourism

Consistently cheaper fuel prices in one jurisdiction compared to a neighbouring jurisdiction should, holding other factors constant, lead to greater demand for fuel in the country with the lower price, due in part to legal fuel tourism. Fuel tourism, cross-border demand for fuel, represents an important source of tax revenues to the Exchequer but also contributes significantly to a country’s national greenhouse gas (GHG) emissions. The econometric analysis in this paper aims to estimate the level and determinants of fuel demand from Northern Irish consumers in the Republic of Ireland taking account of market size, proximity to major roads, level of local competition and station characteristics. The analysis is based on an unbalanced panel dataset of retail sales among 543 border stations from April 2013 to March 2015. The results show that the set of stations close to the border have higher than expected average diesel and petrol sales by 54.4% and 14.6% respectively. Greater levels of fuel tourism for diesel may partly be attributable to heavy goods and other vehicles which avail of cheaper prices near the border before making long distance journeys on to the Continent. The combined Excise Duty, Carbon Tax and VAT contribution to the Irish Exchequer associated with fuel tourism is estimated at €202 million for diesel and €28 million for petrol based on 2015 levels. CO2 emissions from these cross-border sales are about 1.17 million tonnes per annum, or 2% of Ireland’s national GHG emissions.