The Economic Naturalist Robert Frank - writing in the New York Times - criticises the use of explicit fuel subsidies (common in many emerging market countries) and also takes a stab at the hidden subsidies that occur when a government does not tax products that create pollution sufficiently highly to reflect the external costs. Many countries are now reining back on such subsidies - a recent example was Vietnam - where the subsidy cut prompted a spike in oil prices for consumers. It is a well written piece and one that could be used when discussing government intervention, allocative efficiency and possible government failure.

“By one estimate, countries with fuel subsidies accounted for virtually the entire increase in worldwide oil consumption last year. Without this artificial demand stimulus, world oil prices would have been significantly lower. Earlier this summer, for example, world oil prices fell by $4 a barrel on news that reduced subsidies would increase Chinese domestic fuel prices by about 17 percent.”

The rest of his article can be found here

How Fuel Subsidies Drag Down a Nation