Africa Growth
16. Feb, 2007

The price of petrol: Getting it right

Subsidized energy is not an efficient form of social protection, for two main reasons. First, selling domestically produced energy at home at a lower price than could be fetched in foreign markets deprives the producers of the energy of revenues they could earn abroad and expend at home, and thereby reduces national income below potential. Second, artificially inexpensive energy discourages enterprises and people from conserving energy, thereby inviting waste. A tax on petrol aimed at bringing its price at the pump closer to world market prices could be used to raise revenue to finance more efficient forms of social protection by improving education, health care, and infrastructure. Nigeria would benefit from such a tax, as would the United States.