Measuring energy subsidies using the price gap approach: What does it leave out?

Tracking energy subsidies for a single country is a challenging task; trying to measure them globally is even more so.  Multi-country studies of fossil fuel studies have been done, and normally use a price gap measure.  This approach compares the world price of the energy commodity with a transport-adjusted world reference price at which fuels could be brought in to a country.  While the price gap provides many useful insights on energy subsidy trends, these estimates form a lower-bound for total support. This paper examines in more detail some of the limitations and assumptions in the price gap approach, and why price gap data should be complemented by periodic detailed policy reviews of financial transfers to particular fuels.  (Prepared for the International Institute for Sustainable Development, August 2009).