Redistribution Impacts of Red Diesel Rebate_Figshare.pdf

A rebated duty on fuel has been administered from the Treasury since 1929 in the UK and is coloured red to ensure strict requirements are met on its use. Rebating diesel fuel is a common fiscal instrument used for a range of industries and countries. Its main objective is to ensure an industry, such as the agriculture sector, to remain competitive during fluctuations in global crude oil prices. However, the rebate foregoes government revenue - which will have distributional consequences. Additionally, agricultural machinery is estimated to contribute around 5-10% of Scottish agriculture’s greenhouse gas emissions. There are strong arguments that the red diesel rebate dampens the desire to decarbonise machinery or switch to alternative less environmentally damaging fuels. Based on these arguments, we explored the potential impacts of a removal of red diesel rebate on Scottish farming systems. We estimated the amount of expenditure, the current use of red diesel and their related greenhouse gas emissions and explored the impact of the removal of the rebate on farm viability for the Scottish farm business survey farms. We examined the consequences of the removal of the rebate on farm economy and production using an optimising farm level model, ScotFarm and also explored a scenario of switching to Hydrogenated Vegetable Oil (HVO), as an alternative fuel source on farms.