For internationally traded energy sources, the standard approach is to select import- or export-parity prices as the starting point for reference prices, because these sources constitute the alternative supply for the domestic market regardless of how efficient or inefficient domestic production of energy may be. A country’s net trade status on a national basis, however, may not represent the trade status in some parts of the country. For example, if a country is separated into two coastal areas by a mountain range, one coastal area may be a net importer and the other a net exporter. In such cases, ideally the trade status applicable to each region should be used. For thinly traded or non-traded energy, cost-recovery levels or costs of competing energy sources have served as references; shadow pricing taking account of a depletion premium is another approach (Devarajan, Martin, and van Wijnbergen 1987).

Price-gap calculations compare adjusted reference and domestic prices at a specific point in time, so the timing of data matters. This includes not only the raw pricing data, but also the exchange rates used to convert import- or export-parity prices. If there are parallel foreign exchange markets due to restrictions on the official exchange, it may not be straightforward to determine the exchange rate at which energy, or goods and services necessary to supply energy, were traded.

There is general consensus that taxes applicable to all goods and services, such as general sales tax (GST) or value added tax (VAT), should be levied on energy. In calculating the price gap, if both domestic and alternative supplies are adjusted for baseline taxes, many of the effects from the tax system drop away because both prices would be affected almost equally. This would include situations in which GST rates on fossil fuels are lower than for other goods. However, two aspects of the tax system may affect pricegap calculations even with netting. First, where fuel taxes are ad valorem (a fixed percentage of the value of the energy being sold), the monetary amount will automatically be lower for the local price if the energy source is subsidized; adjustments may be required to ensure that reference and local prices be compared on the same tax basis. Second, the government may charge energy-specific user fees (such as for maintenance of strategic reserves or spill response capability), and they need to be taken into account in price-gap calculations. Where there are various end-consumer taxes at different levels of the government (central, provincial, municipal), data requirements to properly adjust for fuel taxes can become large.

Reference prices are discussed next by fuel and energy type. The challenges faced are similar to those faced by governments in setting an automatic pricing mechanism for fuels or cost-reflective tariffs for electricity and district heating.

# **_Petroleum products_**

Crude oil and refined petroleum products are internationally traded global commodities. In 2013, twothirds of oil consumed globally crossed national boundaries (BP 2014). Daily free-on-board (FOB) spot prices of different types of crude are available in trade publications. While daily prices of Brent and West Texas Intermediate, two benchmark crude oils, are publicly available, most others are proprietary and available only to subscribers. Similarly, daily spot prices of key petroleum products are available in major refining centers, notably western Europe, the Arab Gulf, Singapore, and several markets in the United States (New York, U.S. Gulf Coast, and West Coast), but again mostly to subscribers. For the same 17