Should Russia increase domestic prices for natural gas?

Previous analyses of Russiaʹs dual pricing system and hidden subsidies for natural gas, have neglected to assess the dual pricing system as a domestic environmental policy. If dual pricing is considered as a policy to reduce conventional air pollutants, it is more than economically justified in Russia on the basis of avoided health risks. In the short term, the substitution of coal for natural gas may result in significant additional human health risk, which translates into economic damage. An alternative abatement possibility is expensive and unlikely enforceable, due to weak environmental regulation. The authors conclude that while the price differential can be expected to diminish over time, as Russia increasingly moves to a market economy, in the near-term, dual pricing of natural gas remains the most efficient environmental policy for Russia.