IMF estimates of fuel underpricing in SA

This posts summarises IMF estimates of the difference between efficient and retail prices of fuel in South Africa. Efficient prices are fuel prices consistent with their supply costs and environmental costs. By its estimates, the underpricing is largest for residential coal – which has an efficient price that is 8 times higher than the consumer price in 2022. Underpricing for local air pollution and global warming accounted for around 75% and 10% of the implicit subsidy for residential coal relative to the estimated efficient price in 2022, respectively. Underpricing for transportation externalities (such as congestion) explain the largest portion of underpricing in the case of gasoline and diesel according to the estimates. The implicit subsidy for electricity is much smaller at around 17% for residential electricity. the estimates. Residential coal represents over half of the implicit subsidy to fuels in SA, with coal for power and coal for industry representing a further 20%.