1.      Indicator

(a)     Name: Energy prices.

(b)     Brief Definition: Actual prices paid by final consumer for energy.

(c)          Unit of Measurement: US dollars per unit of energy (different units).

(d)         Placement in the CSD Indicator Set:  The indicator is part of the set of indicators of consumption and production patterns.  It is not included in the general CSD indicator set.

2. Policy Relevance

(a)          Purpose: This indicator reflects the extent to which energy becomes more or less expensive over time.  

(b)     Relevance to Sustainable/Unsustainable Development: Consumption of fossil fuels is a major contributor to global warming and air pollution.  Fossil fuel resources should also be conserved to support long term development.  Energy prices can be regulated to internalize environmental and social costs, to manage demand, and to encourage development of alternative renewable energy sources.  In developing countries, energy prices also indicate the affordability of energy for economic and social development.  

(c)     International Conventions and Agreements: None  

(d)         International Targets / Recommended Standards: No international targets have been established.  However, it is widely accepted that external costs of energy production and consumption should be internalized. 

(e)     Linkages to Other Indicators: Energy consumption. Other related indicators are: annual energy consumption per capita, intensity of energy use, share of renewable energy in total energy consumption, emissions of greenhouse gases, decarbonization of total energy consumption, and share of energy tax in the price of energy.  It is also useful to relate the indicator to disposable income (see 1 (b) of the Addendum).  

3. Methodological Description

(a)     Underlying Definitions and Concepts: This indicator should reflect the actual price paid by final consumers for various energy products. Prices should include all regular charges linked to the supply of energy to the customer. For example, for electricity and gas, the data should include not only the price per kWh or cubic meter, but also any standing charges and meter rental charges.  Initial charges for connection to the electricity or gas network should not be included.  For other products, any delivery charge should be included.

Different prices are often charged to different types of consumers.  Therefore prices should be collected for the main fuels, which may differ from one country to another, and for different types of consumer, e.g. domestic or industrial.

An underlying principle of tracking price data over time is that the product for which the price is tracked remains the same throughout the period.  This is clear in the case of, say, gasoline, where the data to be collected is always the price at the pump of one liter or gallon of gasoline.  However for other products such as electricity or gas it is less straightforward, as the price per kWh paid will vary depending on the amount delivered.  Therefore it is necessary to define one or more standard consumers, representative of consumers in that country, whose consumption pattern does not vary from one year to another, in order to track changes in price paid.  

(b)               Measurement Methods: Because prices change through the year, the data collected must refer to a fixed date: 1 January of each year is proposed.  

Three price levels should be distinguished: prices including all taxes; prices excluding deductible taxes (normally only deductible for industry); and prices excluding all taxes.  If possible, subsidies for different consumers should also be identified, though in practice this can prove to be extremely difficult, as the subsidies are often hidden in complicated tariff systems.

In general, prices are collected in national currencies and converted to a common unit, usually US dollars. Exceptions would be fuels such as aviation fuel, which is often billed directly in USD. A further refinement is to deflate prices to allow for inflation. In order to deflate the price series, the Consumer Price Indices should be used for household prices, including pump prices of gasoline and diesel, and the Industrial Price Indices (or GDP, as an alternative, if Industrial Indices are not available) should be used for industrial prices.

Prices should be collected for the following products, in so far as these are commonly available on the market in the country.  

§         Petroleum products  

Units:

-         Premium gasoline/unleaded gasoline (95 RON) and automotive gasoil (diesel): national currency/litre

-         Heating gasoil (light fuel oil): national currency/litre (for domestic purposes)

-         Residual fuel oil (heavy fuel oil): national currency/tonne (for industrial purposes)

-         Liquid petroleum gas (LPG):  national currency/GJ or /kcal

-    Kerosene for aviation: national currency or USD/tonne

Measurement: Average price charged by the main distributors on 1 January.

Prices for gasoline and diesel should be pump prices.

For heating gasoil and residual fuel oil, a standard offtakes or delivery must be defined since in general the price is cheaper for larger deliveries. Standard offtakes should be defined for domestic consumers and for industrial consumers; for example in the EU countries, prices are collected for

-         Heating gasoil: deliveries of 2,000 to 5,000 litres,

-         Residual fuel oil: offtakes less than 2,000 tonnes per month or less than 24,000 tonnes per year.

For LPG, the price should be based on the price for a standard cylinder of gas supplied for domestic use. If LPG is used by industry, then the price for a typical offtake is used, see above.

  §         Coal

Unit: national currency/tonne

Measurement: In many countries the main users of coal are electricity generators and the steel industry. These often directly import coal to meet their own needs, in which case it is sufficient to collect data on coal import prices.

Coal producing countries often have more extensive domestic markets for coal, in which case average prices should be collected for typical deliveries for domestic and industrial consumers, in the same way as proposed for petroleum products.  

§         Electricity and piped gas

Units:

Electricity: national currency/kWh

Gas: national currency/GJ (Gross Calorific Value) or national currency/kcal (GCV)  In practice gas is often billed in cubic metres, in which case it should be converted to price per GJ, based on the calorific value of the gas (GJ/m3)

Measurement:

Tarification of piped gas and electricity is complicated and the price charged to consumers will vary depending on a variety of factors such as continuity of supply, load factors, off-peak periods, quantities delivered, etc. This makes it extremely difficult to identify ‘the’ price of electricity or gas supplied to final consumers. 

The proposed solution is to identify one or more standard or typical levels and conditions of consumption for each type of consumer, i.e. domestic, commercial, industrial, and to calculate prices based on published tariffs for that typical consumer.  See the EU Directive (90/377/EEC) and Eurostat publications on electricity and gas prices.

·        Crude oil

Units:  $ per tonne (CIF)

Measurement: average import price during the reference period, defined as the imports representing 75% of the crude oil imported, weighted according to the import volumes.

Crude oil prices are more affected by international market conditions than by national conditions. Crude oil prices have the greatest impact on the price chain, with variations in crude oil prices normally transferred to petroleum products (gasoline, diesel, fuel oil). National policies promoting the use of renewable energy sources are also strongly affected by crude oil prices.

For this reason, background information on trends in crude oil prices is useful, even if they are not final consumption prices.

A selection of the main types of crude oil (Arabian Gulf, West Texas, Caribbean, etc) could be undertaken, taking into account that different qualities (in term of different API degrees) affect the cost of refining.  

(c)        Limitation of the Indicator: The wide variety of energy products available on the market means a large number of prices need to be collected. For example for road transport, leaded and unleaded 95 octane petrol, leaded and unleaded 98 octane petrol, diesel fuel, LPG and liquified natural gas can all be found on the market. Normally only a selection of those considered most representative can be taken into account.

Further problems include differing prices for different locations throughout the country, e.g. prices in remote rural areas are often much higher than in major cities. As mentioned above, for some forms of energy, in particular electricity and gas, the price per unit will depend on a variety of delivery conditions. The indicator can therefore only be indicative of the price paid by a typical or standard consumer and cannot reflect the full spectrum of consumer types and locations.  

(d)        Status of the Methodology:  

(e)        Alternative Definitions / Indicators:

§         Petroleum Products and Coal

In practice the method proposed above may prove difficult for industry when no ‘list price’ exists, and industries negotiate individual supply contracts with the coal producer or oil company. In this case, the only solution is to carry out a sample survey of industry costs and to calculate average unit prices defined as total cost/quantity purchased

·        Electricity and piped gas

For electricity and gas, a similar alternative is to use industry and household surveys to collect information on quantities of electricity and gas purchased and amounts charged, and to calculate average expenditure per unit purchased. This is strictly speaking not a true price, but rather a weighted price, where the weighting varies from one year to another. However it is preferable to the average revenue method, below.

The average revenue method, commonly used for lack of a better alternative, is based on data from utilities on average revenue per unit delivered.  However it is generally not possible to distinguish sales to domestic or industrial customers, and data is skewed towards industry as the major consumers. Moreover, revenue data often includes charges for connecting new customers to the network and for repairs, as well as income from sales of appliances. 

4. Assessment of Data

(a)          Data Needed to Compile the Indicator:  Energy prices  

(b)         National and International Data Availability: For coal and petroleum products, except aviation fuel, prices in developed countries are generally available, both nationally and internationally (OECD, Eurostat).  For gas and electricity the availability of price data varies from one country to another. 

(c)    Data References: 

Energy Prices OECD

Energy Prices 1980-1997 Eurostat

Electricity Prices 1990-1997 Eurostat

Gas Prices 1990-1997 Eurostat

Electricity Prices: Price systems 1997 Eurostat

Gas Prices: Price systems 1997 Eurostat

Energy Prices & Taxes - quarterly, IEA  

5. Agencies Involved in the Development of the Indicator

Lead Agency:   Eurostat (the Statistical Office of the European Communities). The contact point is Mr. Mario Ronconi ( e-mail: mario.ronconi@eurostat.cec.be; tel. 0035 2 4301 35532, fax  0035 2 4301 37316) 

6. References

(a)                Readings:  

(b)        Internet sites:  

OECD:  http://www.oecd.org

IEA:  http://www.iea.org

ADDENDUM TO THE METHODOLOGY SHEET  

ADDITIONAL INFORMATION :

1.      Trend indicators

To allow the analysis over time, some trend indicators could be selected, using real price series as a basis:

(a)     Prices versus consumption

A simple analysis between price and consumption trends of each commodity can be carried out by comparing the variations in the reference period and measuring how the consumption changes relative to price changes.  The usual measure for this is “price elasticity,” which is defined as the percentage change in consumption for one percent change in price, provided that income remains constant.

            C                                C

                                      or                         

           P                                  P

This formula measures the impact of price variations on the quantities consumed or demanded:

-         A value > 1 shows a higher consumption change following price variations. It should be expected when prices fall.

-         A value < 1 shows a lower consumption change following price variations. It should be expected when prices rise.

Price elasticity measures the impact of price variations on the quantities demanded or consumed. Normally, it has a negative value: the higher the price, the lower the consumption, and vice versa.  However, if the "minimum level" of consumption needed for normal functioning of the economic system is reached, further price increases do not reduce energy consumption.  Energy consumption is also influenced by other factors, including weather and the availability of substitute energy sources.

Product taxes can be taken into account by using the variations of prices with and without taxes in the price elasticity formula.  

(b)     Prices versus disposable income

The relative affordability of energy can be calculated as the unit price of each commodity as a percentage of the daily disposable income per capita in dollars.

The real net national disposable income per household could also be used to better reflect variations in purchasing power. Consumer prices by commodity and in real terms should be used.

       Unit price for each commodity______  x 100 

Annual disposable income per capita / 365  

Small values for rich countries and higher values for poor ones should be expected.

The affordability of energy can be calculated at the national level and for different income groups within a country - with their specific disposable income per capita.

Medium and long-term variations could be also useful for assessing the impact of structural changes in income distribution.  

2.  Specific patterns of energy markets  

(a)  Quality differences by product:

Variations in qualitative features determine several unit prices for the same  energy product.

(b) “Administrative price” and “Taxation price” pattern

In some countries, energy prices are fixed administratively and do not reflect effective market prices. Normally, administrative price fixing implies application of specific administrative components (negative and/or positive) to a price reflecting production factors and market demand (“economic price”). The so-called “taxation price” concept, i.e. the amount of tax levied per unit, could also be applied to most energy prices. Ideally, at the macro level of economic accounts, three distinct price components should be considered:

-  Taxes on products: Prices have to be reported including and excluding all taxes and, in the case of industrial prices, excluding only deductible taxes (e.g. VAT).

-  Subsidies on products (applied in order to facilitate the supply to specific categories of consumers, e.g. industries or households); information on subsidies per unit price could be difficult to obtain;

-  VAT on product

(c)  Other criteria of price fixation

It is useful to consider also the following patterns, which directly influence consumption and effective prices for energy (and interact with the administrative fixation pattern):

price discrimination: different prices by sellers to different purchasers for identical goods

parallel markets: (as a result of or reaction to shortages or administrative controls.