Fossil fuel costs must include externalities

The contribution of the Covid-19 pandemic in bringing down carbon emissions is unparalleled. In doing so, the pandemic and the lockdown also helped quantify the environmental harms of burning fossil fuels. These harms are often not fully understood because they are not included in the total costs of using fossil fuels.


The increasing cost of petrol and diesel has raised eyebrows and tempers across India. The Government has attributed the increase in price to the monopoly of the international oil companies. The oil producing countries are believed to have reduced the production and supply of crude oil, resulting in rises in demand and correspondingly in the prices of fossil fuels.

Opposition parties in India have been quick to point out flaws in this explanation. The cost of petrol and diesel is relatively cheaper in neighbouring countries. The Finance Minister’s advice for the Centre and respective states to negotiate and bring down fuel prices is further suggestive of taxes and surcharges behind this rise.

Last year, the major oil producing countries of the world cut oil production due to Covid-19. The pandemic- induced lockdown had reduced global consumption of oil and thereby its demand. Decline in transportation activity, including air transport, led to a global drop in carbon emissions. By mid-2020, NASA and other global monitoring agencies had begun publishing the environmental impacts of the economic slowdown due to Covid-19. The Earth Observatory of NASA and European Space Agency detected a significant decrease in airborne nitrogen dioxide pollutant over China in February 2020. A thirty per cent drop in air pollution was recorded by NASA over the US east coast in March 2020. Global greenhouse gas (GHG) emissions had dropped anywhere between 7 to 17 per cent by April 2020.

Note: This blog is a re-post of the original posted on The Statesman website.