Fig. 1.

The PI and CI of an implicit fossil fuel subsidy. MEC represents the marginal external cost associated with each unit of $Q$. (A) The presence of no preexisting tax is assumed. The total implicit subsidy is the area $\text{MEC}\times Q^{\text{'}}$. The incidence measures capture the gain in producer and consumer surplus from inefficient pricing, i.e., the respective shaded areas excluding the vertically hashed triangles. (B) A case with a preexisting tax; the net corrective tax is the difference between the MEC and the preexisting tax.