Energy subsidies and poverty: The case of fossil fuel subsidies in Burkina Faso

Burkina Faso has long relied on energy subsidies to facilitate the access of the population to energy products. However, there is no evidence that they contribute to monetary nor energy poverty reduction. This paper aims to assess the effectiveness of fossil fuel subsidies in alleviating monetary and energy poverty in Burkina Faso, fo-cusing on Liquefied Petroleum Gas (LPG) and liquid fuel subsidies. It then evaluates the impact of shifting expen-diture from energy subsidies towards universal cash transfer to the poor.The distributional impact of subsidies on households is estimated using the price-gap approach, computing the difference between the reference price and the end-user price across the income distribution. Unlike many price-gap analyses, our price-gap estimate takes into account regional disparities in energy pricing. The analysis reveals that energy subsidies are not pro-poor. Rather, (i) end-user prices of LPG and liquid fuel are not aligned with monetary poverty, (ii) subsidies have a near zero impact on energy and monetary poverty, as those at the bottom income distribution barely benefit from the subsidies, (iii) there is a geographical dimension to the regressiveness of subsidies, as the reform impacts wealthier regions only. Alternative energy policies under the form of a cash transfer targeting the poor maximize redistribution while being budget-neutral.(c) 2022 International Energy Initiative. Published by Elsevier Inc. All rights reserved.

Automated summary

Burkina Faso has been relying on energy subsidies to facilitate access to energy, but there is no evidence that these subsidies have reduced monetary or energy poverty. A study shows that the subsidies are not pro-poor and have minimal impact on poverty reduction. Shifting the expenditure from energy subsidies to targeted cash transfers to the poor may maximize redistribution without increasing the budget.