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Measuring Subsidies Using The Price-Gap Approach

The price-gap approach is one of the most commonly employed methods for estimating fossil-fuel subsidies: an examination of differences between the price for a good or service in the economy against what that price would be without government intervention. This report explains how the price-gap method works, reviews its benefits and limitations, and explores potential systematic bias in estimates, drawing conclusions and implications for their interpretation. It concludes that price gap data should be collected annually for all major fossil-fuel energy producing and consuming nations. Gaps in the estimation method could then be filled in every five years through the more complex but more complete 'transfer' method of estimating subsidies.