Maria van der Hoeven, Executive Director of the International Energy Agency (IEA) spoke last week at the two-day Energy Information Administration (EIA) conference in Washington, D.C. expressing her view – as reported by Jennifer A. Dlouhy for fuelfix.com – that “ending ‘wasteful fossil fuel subsidies’, which may encourage overconsumption of oil and gas, particularly in the Middle East,” still constitutes a big challenge around the world. Ms. van der Hoeven also suggested that by taxing gasoline much more lightly than in other OECD countries the U.S. may actually contribute to adverse consequences such as “wasteful consumption”. Ms. Dlouhy cites the IEA Executive Director as saying that “among developed countries, the United States has next to the lowest price for gasoline, bested only by Mexico.” The following IEA in-house graphic not only illustrates this point but also shows the big impact taxation has on gasoline prices in most OECD countries.

Unleaded Gasoline Prices and Taxes in OECD Countries 

Source: IEA; data reflect 1^st Quarter 2014 prices and taxes

The IEA notes:

“Even if the ex-tax prices vary from country to country, it is taxation that has a big impact on the pump prices, making up the largest share of the total price in 22 of the 32 countries surveyed. The lowest gasoline prices can be found almost exclusively in large non-European countries, such as the United States and Mexico, where taxes are around 15% of the total price. In contrast, countries like the Netherlands, Italy, Norway and Turkey levy taxes of around 60%, which make their prices to consumers the highest in the OECD area.”

Now, how does this compare to the region with the world’s greatest endowment of natural resources? The Middle East and North Africa (MENA) region is generally characterized by a pervasiveness of high fuel subsidies, which – according to the World Economic Forum – weighs heavily on the MENA’s economic performance, creates an inefficient use of resources and hinders investment in renewable energy sources, the latter also contributing to high GHG emissions. The World Economic Forum notes in its latest Global Energy Architecture Performance Index 2014 with respect to MENA fuel subsidies:

“As a result of the highly subsidized prices at which fuels are sold domestically compared to international market prices, countries throughout the MENA region perform poorly on the price distortion of liquid fuels indicator. Libya and Saudi Arabia are the lowest ranking in the region and among the lowest ranking globally for this indicator, with prices for super gasoline at US$ 0.12 c/l and US$ 0.16 c/l respectively.”

Average Regional/Cluster Ranking per Respective Indicator

Notes: Average regional/cluster ranking per individual indicator; ranking from 1 (best) to 124 (worst).

Source: World Economic Forum

The above table compares the average performance of certain regions/economic clusters across various energy-related dimensions. The table shows clearly that the Middle East and North Africa (MENA) is among the lowest-performing regions in the world with eventual adverse consequences on the environment (i.e. carbon-intensity) as well as economic performance and development. Note, the results in this table with respect to the level of price distortion of super gasoline and diesel through subsidy or tax underline Ms. van der Hoeven’s concern of potentially ‘wasteful consumption’.

For additional detailed Breaking Energy coverage of this issue read here.

MENA has the worst scores with 101 and 109 respectively. Granted, this is not really news and is driven by a permanent concern for regime stability in those countries. However, what is a bit surprising – but in line with Ms. van der Hoeven’s warning – is that North America as a cluster with a score of 65 is barely outperforming ASEAN (66) or Developing Asia (64) on the ‘super gasoline’ indicator. This only indicates that a deliberately low tax component in the gasoline price – thereby functioning as a subsidy on the demand side – may contribute to the same inefficiencies an open fuel subsidy policy does: ‘overuse’ of scarce resources by consumers, which tends to lead to waste, and foregone tax revenues in the US case.