Drawing a Roadmap for Reforming Oil Pricing Policy
Between 2003 and 2012 the average annual world prices of gasoline, diesel, and kerosene in 160 countries more than doubled, while the prices of liquefied petroleum gas (LPG) used for cooking and heating increased by two-thirds. Between January 2009...
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| Format: | Energy Study |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/01/18019482/drawing-roadmap-reforming-oil-pricing-policy http://hdl.handle.net/10986/16528 |
| Summary: | Between 2003 and 2012 the average annual
world prices of gasoline, diesel, and kerosene in 160
countries more than doubled, while the prices of liquefied
petroleum gas (LPG) used for cooking and heating increased
by two-thirds. Between January 2009 and January 2013, many
countries did not pass through increases in world oil
product prices to domestic consumers. The median
pass-through for gasoline and diesel increased with income
and was less than two-thirds in low- income countries.
High-income countries had larger median pass-through
coefficients than any other income group. For kerosene, the
median pass-through was full in upper-middle-income
countries, but half in low and lower-middle-income
countries. Among developing countries, the median
pass-through for LPG was highest in low-income countries.
More generally, about two thirds of the study countries have
kept domestic prices below market-based levels for one or
more fuels in the past three years, subsidizing consumers.
In every case the government pays directly-or indirectly
through budgetary transfers, tax expenditures, or lower
corporate tax collection due to financial losses suffered by
oil companies. Many countries have universal price
subsidies, widely acknowledged to be regressive. Quite a few
have subsidies targeting certain consumer categories, most
notably kerosene and LPG for households. Targeted subsidies
for oil products have large leakages (such as diversion and
smuggling) because, unlike electricity or natural gas,
liquid fuels are easy to store and transport.
Differentiating prices for the same oil product by user
category creates powerful financial incentives to divert
lower-priced fuels to users ineligible for the price
discounts. Typical recipients of such targeted price
subsidies are households (kerosene or LPG for cooking,
lighting, and heating), transport operators, farmers, and
fishermen. Although prices of kerosene and diesel are close
on the world market, many governments price kerosene below
diesel in the name of protecting non-electrified households
that use kerosene for cooking, lighting, and heating.
Government transparency is important regarding the agency in
charge of pricing, the scope of its regulatory power, how
prices are set, the criteria for price adjustments, the
price breakdown, the magnitude of under-or-over recoveries,
and the stakeholders being consulted. |
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