Energy Policy Tracker

As low-income households spend a larger portion of income on electricity, electricity tariff increases can either increase or decrease inequality, depending on the specific income distribution in a country.

A decrease in electricity tariffs is likely to have a limited increasing effect on inequality, as high-income households disproportionately benefit from electricity subsidies, especially in urban areas.

Poverty increasing or decreasing depending on the direction of the price mechanism (medium confidence)

Increased electricity tariffs increase poverty in the short term due to inelastic demand, as there are few substitutes for electricity.

Lower electricity tariffs tend to decrease poverty, though only marginally in areas where electricity makes up a smaller portion of household expenditure.

Volatility of electricity prices

Proportion of household income spent on electricity by different households

Government spending on social welfare as opposed to electricity subsidies

Progressive taxation of other forms of household energy consumption not included in electricity tariffs

Direct cash transfers to households instead of energy subsidies

Poor households spend a larger portion of income on energy than higher-income ones, so gas price increases tend to increase inequality where gas is used. However, richer households spend larger amounts on energy, which may reverse this effect.

A decrease in gas price is likely to have a limited increasing effect on inequality, as high-income households disproportionately benefit from gas subsidies. In low- and middle-income countries, many low-income (especially rural) consumers do not use gas, hence gas subsidies become a transfer to higher-income groups, increasing inequality

Lower gas prices decrease poverty where gas is used by low-income households, though only marginally in areas where gas makes up a small portion of household expenditures.

Higher gas prices are likely to increase poverty. In low- and middle-income countries, it can lead to fuel switching to kerosene or biomass, causing additional health impacts.

Volatility of gas prices

Gas consumption patterns

Proportion of income spent on gas by different households

Government spending on social welfare

Compensation mechanisms in place (e.g., through direct cash transfers to lower-income households)

Support for households to transition to clean energy sources and technologies
Support for households to improve household energy efficiency

Policies lowering the price of energy can reduce inequality if firms choose to pass on savings to workers and consumers or increase inequality if the savings are captured by shareholders.

Policies raising the price of energy can reduce inequality if firms absorb the price difference by reducing profits or increase inequality if firms pass on the cost to consumers, reduce wages, or lay off workers.

Policies lowering the price of energy for businesses is likely to be poverty neutral: because of price stickiness, firms are unlikely to pass on savings to consumers.

Policies that raise the price of electricity or gas can increase poverty if the increased cost is translated into lower wages or higher consumer prices.

Energy intensity of business

Type of industry

Target consumers of the firms’ products

Ability for firms to substitute factors of production

Stipulations to share energy savings with labourers and consumers

Direct cash transfers for small enterprises

Housing type of consumers and potential to install renewable energy systems

Share of urban vs rural population

Progressivity of electricity tariff structure

Loan programs for lower-income households or improved access to support policies

Benefits are likely to be disproportionately captured by the higher-income business owners, while grid costs induced by higher renewable energy penetration are likely to be carried by all consumers. The magnitude of impact will be influenced by the firm’s choice to save or pass on decreases in energy cost.

Such policies can be poverty increasing when renewable energy installations from businesses increase the tariffs paid by other consumers.

Such policies can be poverty decreasing in low- or middle-income countries, where measures are targeted at low-electrified, rural areas, by lowering access costs (i.e., other generation options) and providing economic opportunities.

Building types, location of businesses, and potential to install renewable energy systems

Share of urban vs rural population

Progressivity of tariff structure

Loan programs for lower-income businesses (targeting)

The job and price effects of such policies are likely to have little impact on inequality. Both lower- and higher-skilled jobs can be created as a result of the policy, while price effects are uncertain.

If price effects are observed, the most likely impact is a decrease in poverty through a decrease in the price of energy. This effect is, however, very uncertain. Such support can lead to job creation if additional capacity is installed, although to a lesser extent than renewable energy generation

Share of household’s revenue dedicated to energy consumption

Increased budgetary transfers that incentivize new renewables can result in higher costs for utilities that are passed on to consumers and disproportionately affect low-income households. These impacts can be offset in the medium term by the stabilization or decrease in energy prices from renewable energy generation.

While there are many jobs associated with renewable energy generation, increased budgetary transfers that incentivize new renewables can result in higher electricity prices that disproportionately affect low-income consumers. The negative price effect should diminish in the medium term as the cost of renewable energy generation decreases.

Share of households’ income dedicated to energy consumption

Location where renewables are installed

Share of renewables in the energy mix

Electricity tariff structure

Share of hydropower in the energy mix

The inequality impact of job creation is likely to be limited, as both lower- and higher-skilled jobs may be created. The direction of the price effect is likely to be limited and depends on the structure of the energy system and type of infrastructure incentivized (new/old).

While such support can be associated with job creation, the direction of the price effect is unclear and depends on the structure of the energy system and type of infrastructure incentivized (new/old).

Share of nuclear power in the energy mix

Type of reactors incentivized

T&D support needs to be considered on a case-by-case basis. Targeting capital expenditure to improve electricity supply for the poor can improve electricity access and therefore reduce inequality. But T&D subsidies for other purposes need to be assessed on their merits.

By targeting rural communities, off-grid solutions can contribute to decrease inequalities.

Improving electricity supply has an alleviating effect on poverty, as it addresses many aspects of poverty, from health to income to education and living standards. Many studies support the positive benefits of electrification programs, especially when they are catered to specific remote or low-income communities. Grid integration of renewables may have a further poverty alleviation effect by creating jobs and reducing environmental pollution.

Targeting of transfers to support networks to rural or low-income areas

Price of renewable energy

Demographics of populations accessing electric grid

Inclusion of multiple energy sources to combat outages

Increasing grid connectivity to improve stability and the entry of renewables, therefore reducing social costs from fossil fuel generation

Employment programs for low-income communities in electric grid upgrades

Inclusion of marginalized communities in energy decisions

Inclusion of local and Indigenous communities in the design of off-grid programs

Policies for private homeowners are likely to be more accessible to higher-income households, while low-income homeowners and non-homeowners may experience time or communication barriers to access these programs. Over time, inequality increases with the costs of energy.

There is likely to be a slight decreasing impact on poverty, as this policy generates additional green jobs in retrofitting homes and for regular maintenance of infrastructure, assuming these jobs are available to lower-income workers.

Income level of households accessing subsidies for energy-efficiency retrofits

Sustainability of job creation as a result of increased demand for private home retrofit projects

Incentives for landlords to make use of energy-efficiency subsidies

Changes in energy costs over time, both affiliated and unaffiliated to the effects of the energy-efficiency programs

Subsidies linked to results in a higher level of subsidies for buildings that save more energy over time

Community reach-out programs for low-income homeowners to bridge the information gap

Training programs for lower-income workers to learn how to conduct retrofits and apply those skills in the regions in which these programs are occurring

Safeguards so tenants do not experience cost increases once energy-efficiency measures are implemented

As low-income households are more likely to live in social housing, this policy would decrease the energy prices paid by these populations and reduce their poverty levels, while energy prices remain the same for higher-income populations.

Alongside creation of jobs for lower-income workers, lowering the cost of energy for those living in social housing would reduce energy poverty for the most marginalized populations. Improving the reliability and efficiency of the energy system would likely also have positive health benefits, which further reduces poverty.

Stringency of rent control policies

Energy performance of the social housing stock

Changes in energy prices over time, both affiliated and unaffiliated to the effects of the energy-efficiency programs

Subsidies linked to energy performance

Ensure secondary living options while retrofitting is occurring

Develop training programs for the low-income workers to learn how to conduct retrofits and apply those skills in the regions in which these programs are occurring

Encourage design of retrofits to meet the specific needs of renters (those with health issues, disabilities, etc.)

Improvement in energy efficiency in public and commercial buildings and lower costs for businesses are unlikely to affect inequality in any substantial way. If profits increase, their distribution between high-wage and low-wage workers is unlikely to change.

Growth in employment opportunities for low-income workers, as well as potentially healthier and safer workplaces for those working in public and commercial buildings/factories/warehouses can decrease poverty slightly.

Proportion of the population working in unsafe/under-heated/under-cooled environments

Government fiscal decisions around the use of macro savings on social programs for the poorest segments of the population

Subsidies linked to energy performance

Develop training programs for the most marginalized segment of workers to learn how to conduct retrofits and apply those skills in the regions in which these programs are occurring

Encourage design of retrofits in commercial buildings that employ many low-income workers to be catered to the health of workers

Lower costs for businesses are unlikely to affect inequality in any substantial way. However, over time, inequality can increase as low-income households become less resilient to fossil fuel price increases and to climate shocks.

While support to the buildings sector may generate employment, this will not be as significant as for retrofits or mandated standards. Without climate strings attached, such support may also increase emissions with detrimental impacts on the health of lower-income households.

Government fiscal decisions around the use of macro savings on social programs for lower-income groups

Evolution of energy prices over time

Change in the energy performance of the building stock over time

Such support is likely to disproportionately benefit the executives of extractive industries. Adverse social costs tend to disproportionately impact local and poor communities.

Such support can lead to job creation for the low-income, low-skilled workforce. This impact tends to be, however, spatially uneven and unsustainable over time. Adverse social costs tend to disproportionately impact local and poor communities.

Migratory nature of resource extraction work

Location of resource extraction sites in relation to local/Indigenous communities

Nature of resource extraction activities (type of fuel, short term or long term)

Tying of increased profits in resource extraction to increased wages for workers and social programs in local communities

Ensuring that taxation of fossil fuels reflects social costs associated with their production and consumption, and that collected revenues are directed to mitigating these costs

Engagement with local/Indigenous communities and provision of the necessary informational and legal support to ensure more just negotiations

Such support is likely to create disproportional benefits for executives of extractive industries. However, as the social cost of fossil fuel extraction decreases, less significant losses may be experienced in local communities. This effect would, however, be marginal if fossil fuel extraction increases as a result of the support.

This type of support can lead to increased job creation for the low-income, low-skilled workforce, with better employment and job quality prospects. It may also decrease the social and environmental costs of extraction at the local level.

Migratory nature of resource extraction work

Location of resource extraction sites in relation to local/Indigenous communities

Tie increased profits in resource extraction to increased wages for workers and social programs in local communities

Ensure that taxation of fossil fuels reflects social costs associated with their production and consumption, and that collected revenues are directed to mitigating these costs

Increased private sector participation is more likely to increase inequality on an economy-wide scale in low-income countries than in higher-income countries, where in the latter institutions, regulations, and complementary policies are more likely to be in place to alleviate potential detrimental impacts.

On a local scale, there is a risk of increased inequality due to an increase in job losses, and for those still employed, the wage gap tends to be higher for private companies than state-owned enterprises.

Private actors may be less accountable than state actors for the negative environmental externalities linked to resource production with potentially detrimental social and environmental impacts at the local level.

There is also a risk of increased poverty due to an increase in job losses, particularly when private companies are solely focused on increasing cost efficiency. Conversely, there is also potential for a decrease in poverty for workers still employed, as private companies tend to pay better than state-run ones.

Excessive privatization and deregulation can lead to a shifting of profits from lower-income countries to (mostly foreign) private investors

Gini coefficients, poverty gaps, and other key poverty and inequality indicators

Un/employment rates, local and economy wide

Design of more equitable contracts to more equally benefit government, foreign private actors, and society

Gradual pace of reforms

Extent of private sector participation (partial involvement to full privatization)

Local content requirements that require the inclusion of local employment, equipment, and/or services

Just transition plans in place to ensure continued social protection of displaced workers during privatization

Such support is likely to create limited benefits for the executives of extractive industries. Increased employment opportunities and reduced environmental damage are likely to benefit low-income workers and the local and poor communities, balancing out these effects.

Such support can lead to increased job creation for the low-income, low-skilled workforce and support the local economy as it transitions away from fossil fuels. In areas with high environmental damage, long-term decreases in health costs can lower poverty.

Migratory nature of resource extraction work

Location of resource extraction sites in relation to local communities

Ensure hiring of locally displaced workers from closing of mine or well in the clean-up activities

Development of economic just transition and diversification plans with relevant stakeholders

Such support is likely to increase inequalities, as increased fossil fuel production may lead to disproportionate benefits for the executives of extractive industries and increased social costs for local and Indigenous communities. Job creation opportunities in sectors requiring a low-skilled workforce (e.g., construction) may limit this effect.

Such support is likely to increase job creation for the low-income, low-skilled workforce in the fossil fuel industry. Infrastructure investments can create additional, more sustainable employment and economic opportunities, but can also lead to further disruptions of local and Indigenous communities’ livelihoods.

Makeup of the extractive industry workforce (skilled vs unskilled)

Location of resource exploration and extraction sites in relation to local communities

Tie increased profits in resource extraction to increased wages for workers and social programs in local communities

Government protection of local communities where exploring, transportation, or storage is occurring, and plans to protect or support these

In low-income countries, carbon pricing has more of an inequality-reducing impact, as high-income groups have a higher share of energy expenditure but the opposite holds true in high-income countries. The underlying distribution of income can also affect the impact carbon pricing will have on income inequality.

Alongside creation of jobs for lower-income workers, lowering the cost of energy for those living in social housing would reduce poverty for the most marginalized populations, and the improvement of energy system reliability and efficiency would likely have positive health benefits, which compound to further reduce causes of poverty.

Poverty gaps

Other key poverty and inequality indicators

Household annual income and consumption expenditure per income group

Carbon tax/emissions trade schemes rate, coverage, and existing industry exemptions

Environmental tax reform and reduction in income taxes for labour

Targeted and untargeted cash transfers

Revenue recycling with other tax cuts (corporate, sales, or manufacturing taxes)

Full or partial earmarking of revenues for renewable energy subsidies, retraining of fossil fuel workers or investments in low-carbon projects