I recently stumbled upon an interesting IMF working paper, entitled “Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies”. As an aside I had not realized that IMF working papers were publicly available, but this spring I’ve been doing a bit of research on the relationship between energy use and environmental degradation, and the IMF has people thinking about these things (a bit to my surprise). The conclusions are not so surprising, but the source raised at least my eyebrows.
They analyze the pricing of various fuels in a number of countries (coal, natural gas, gasoline, etc), and show where the retail prices lie vs a continuum of costs including supply costs, global warming costs (which they calculate), local pollution, congestion, accidents, and road damage. They accept various formulas for calculating the cost associated with global warming and local pollution (but only relative to the impact on human life).
They use the term “efficient price” to describe the price that incorporates the indirect costs of the use of various fossil fuel forms of energy and the term “subsidy” to describe the net benefit to energy companies and the public of charging less than the efficient price. Of course, in the long run, the public is going to pay the subsidy. Interesting stuff.