Measuring Energy Subsidies Using the Price-Gap Approach: What does it leave out?

By Doug Koplow on September 23, 2009
Subsidies to fossil fuels are common worldwide, despite increasing pressures to control energy-related emissions of greenhouse gases. Multi-country studies of subsidies normally use a "price gap" approach comparing domestic prices to world reference prices. Price-gap measures form a lower bound estimate of subsidies, and therefore understate the magnitude of the subsidy problem. This paper examines specific strengths and weaknesses of the price gap metric and identifies potential systematic biases in the measure based on type of fuel, type of subsidy, or type of country. Recommendations focus on ways to improve tracking of price gaps and on alternative subsidy measurements needed to provide an adequate informational base for addressing climate change challenges.

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IISD, 2009