With the Paris climate agreement, the participating countries have committed to reducing greenhouse gas emissions caused by the combustion of coal, oil and gas. Eliminating fossil fuel subsidies is considered one of the most cost-effective methods of achieving that goal. Taxes on these energy sources would go further, but for now it would be progress if we stopped artificially cheapening the use of fossil fuels.
Unfortunately, it is unclear whether these recommendations are being followed, as government self-reporting is incomplete and unreliable. Without a consistent way to measure these taxes and subsidies, it is difficult to determine whether any progress has been made in reforming fossil fuel prices.
In a new study, a team of researchers used monthly data on gasoline prices in countries around the world to determine the net tax or subsidy levied on a gallon of gasoline by their governments. Since petrol is sold directly to consumers in all countries, sales prices are an indication of the underlying costs. And the cost of gasoline is relatively constant; Country-to-country differences in gasoline quality are minimal and the price of oil acts as what is effectively a single world reference price. It is therefore possible to use the data to gain insight into the influence of policy changes on petrol consumption.
Compared to previous studies, this work provided a much more detailed dataset by significantly increasing the frequency with which it sampled retail gasoline prices.
The survey included all sovereign states with more than 1 million inhabitants in 2012, except Cuba, Eritrea, North Korea and Turkmenistan, as the team was unable to obtain reliable data. It covered the period from January 2003 to June 2015, using sources such as national government websites, state oil companies and public announcements. In a number of countries, local researchers were engaged to obtain this information.
Net taxes and subsidies were measured using a method that compares the observed sales price in each country with the global reference price (price gap method). This method produces a single figure that represents the net value per unit of all implicit and explicit taxes and subsidies, and should be considered as a lower bound for total fossil fuel subsidies.
A regional assessment found that net taxes were the highest in Europe and North America, rising sharply before falling in July 2014 as the oil industry collapsed. The next highest region with taxes was Africa. In contrast, the lowest taxes were found in the Middle East and North Africa, and they rose modestly over the 12-year period. After those regions, the former Soviet Union showed the second lowest taxes.
Country level assessment
The researchers then evaluated the number of countries that subsidized the cost of fossil fuels. A total of 33 of them have been subsidizing fossil fuels for at least one year, while nine have been subsidized for the entire period. A total of 22 countries were considered “persistent subsidy providers”, with median gas prices consistently below the global reference price. For the most part, these countries had relatively fixed gasoline prices, adjusting only once every 17 months on average. Not surprisingly, these countries were all economically dependent on oil or natural gas exports.
The team also examined changes in net taxes at the country level. They found that net taxes rose in 83 countries, which we would like to see, but fell in 46 others. Perhaps unsurprisingly, consumption grew faster in countries with subsidies or low taxes.
Still, it made a difference worldwide. The team calculated a consumption-weighted metric to determine the global average net tax on gasoline. And this showed that the global average gasoline tax fell by 13.3 percent, driven by consumption growth in countries with lower taxes on gasoline.
Finally, the scientists were able to use their data to determine the extent to which the government allows prices to remain fixed or fluctuate with market forces (a trait called “price fixity”). In general, the number of countries with fixed prices fell slightly. Oil prices rose between 2003 and 2009, leading many countries with fixed petrol prices to subsidize. After the fall in the oil price around mid-2012, the number of subsidy providers decreased, as did the size of the subsidy.
This research provides a powerful tool that can assist policymakers in making decisions about international fossil fuel price reforms. And it shows how much work policymakers still have to do.
Nature Energy2017. DOI: 10.1038/nenergy.2016.201 (About DOIs).