Changes in End-User Petroleum Product Prices

Attributed Authors: Masami Kojima Published: Feb 2009
 
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Consumer subsidies to oil consumption depress the visible price of fossil fuels to end users, and with it their incentive to substitute alternative fuels or conservation.  Understanding which countries mute price adjustments in oil products, and to what degree, is important in mapping out the options and trade-offs for reform.

This paper presents retail prices of four petroleum products in August 2008 in up to 56 countries, and examines the degree of passthrough to consumers of increases in world gasoline and diesel prices since January 2004 in 48 countries. For all but three developing countries, the study further divides the time period into two subperiods: January 2004–January 2007 and January 2007–August 2008. January 2007 marked the lowest price level in more than a year and a half, helping those governments that intervene in domestic fuel price–setting to adjust to higher world oil prices. Not passing through world oil price increases fully can result in direct fiscal costs (from fuel price subsidies funded by the budget or fuel tax reductions); indirect fiscal costs (such as through contingent liabilities incurred by national oil companies accumulating debts); and adverse effects on the level of competition and efficiency in the oil sector if firms are forced to carry some of the cost of price subsidies, making it more difficult to attract investment to the sector.

Tags: gasoline price gap Oil subsidies fossil fuel developing world