All governments have policies that encourage or discourage the consumption of transportation fuels, typically through a complex web of policies that have the effect of taxing or subsidizing the price that consumers pay.1 Government policies play a strong hand in producing dramatic differences in gasoline prices. In October 2024, a liter of gasoline sold for $0.02 in Venezuela and $3.56 in Hong Kong.2
The black line is the global “benchmark” price for gasoline, which is a reference price determined by supply and demand dynamics in the global market. Countries fall into two groups: (i) those above the benchmark line, indicating that they are taxing
gasoline sales, and (ii) those below the benchmark line, indicating that they are subsidizing
gasoline). Of the 155 countries shown, 133 (85.8%) were net taxers for most of the period, and 22 (14.2%) were net subsidizers.3
Several interconnected factors explain price differences.4 Oil endowments have a big impact on gasoline prices. Gasoline prices are lower than the benchmark price in most oil-exporting nations. Large domestic endowments translate to lower production and transportation costs. In addition, many oil exporting nations subsidize gasoline prices to garner political support and to spur economic growth.
Countries with higher per capita income tend to have higher gasoline taxes compared to their lower income counterparts. People in high-income countries generally have greater disposable income that makes it possible to absorb higher taxes. Gasoline taxes generate significant revenue for governments to fund a wide range of public goods and services. For example, revenue from the federal gasoline tax in the United States is primarily used for building and maintaining highways, bridges, and other transportation infrastructure
Government debt also affects gasoline prices. High government debt may lead a government to tax energy to manage debt repayments and fund public services. Taxes on gasoline (and electricity) generate a quick and relatively reliable way to generate government revenue.
Policy decisions that affect the price of gasoline and other sources of energy have enormous social and environmental impacts. Fossil fuels account for more than 90% of global transportation energy use, and carbon dioxide emissions from transportation account for about 20% of all emissions.5 There is a widespread call to reduce the multi-trillion dollar annual subsidy of global fossil use because those subsidies encourage consumption and thus run counter to the need to reduce greenhouse gas emissions.6 Putting a price on carbon, i.e., taxing carbon, is widely seen as the most cost-effective and flexible way to achieve greenhouse gas emission reduction and to spur investment and innovation in clean technology.7
1 Mahdavi, Paasha, Cesar B. Martinez-Alvarez, and Michael L. Ross. “Why Do Governments Tax or Subsidize Fossil Fuels?” The Journal of Politics 84, no. 4 (October 1, 2022): 2123–39. https://doi.org/10.1086/719272.
2 Trading Economics, “Gasoline Prices – World,” Accessed November 1st, 2024, https://tradingeconomics.com/country-list/gasoline-prices
3 Mahdavi et al., op.cit, page 2127
4 The discussion here is based on Mahdavi et al., op.cit.
5 international energy agency, “Transport,” accessed November 1, 2024, https://www.iea.org/energy-system/transport
6 International Monetary Fund, “Fossil fuel subsidies,” accessed November 1, 2024, https://www.imf.org/en/Topics/climate-change/energy-subsidies
7 United Nations Framework Convention on Climate Change, “About Carbon Pricing,” accessed November 1, 2024, https://tinyurl.com/488r647v
