The Economic Cost of Global Fuel Subsidies By Lucas W. Davis∗

By 2015, global oil consumption will reach 90 million barrels per day (U.S. DOE, 2013, Table A5). In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel sub-sidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to over-consumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs in-creases the economic costs substantially. I. Fuel Prices Figure 1 plots road-sector gasoline con-sumption per capita and gasoline prices for 128 countries. A plot of diesel consump-tion and prices is available in the online appendix. Prices are domestic consumer prices including taxes and come from a sur-vey administered November 2012. The size of the circles is proportional to country pop-ulation. The figure reveals an enormous amount of variation in gasoline prices. Gasoline prices average $5.26 per gallon, but range from $.09 per gallon in Venezuela to above $9.00 in Turkey and Norway. Diesel prices tend to be a bit lower, averaging $4.12 per gallon, with a range from $.04 to above $7.00. This wide variation in prices is somewhat sur-prising because crude oil and refined prod-ucts are widely traded internationally, s