Energy transitions negatively affect inequality.

A new dashboard from IISD and ODI begins to unpack the many ways in which different energy policies can affect inequality and poverty. The Inequality and Poverty Dashboard assesses the likely impacts of more than a thousand energy policies from the Energy Policy Tracker, adopted by 30 governments in advanced, emerging, and developing economies as well as European institutions during the COVID-19 pandemic. It covers the period between January 2020 and November 2021.

How Do Energy Policies Affect Inequality and Poverty?

The relationship between the climate, poverty, and inequality outcomes of energy policies is complex.

First, there is no clear correlation between these policies’ environmental and social impacts. Both clean energy and fossil fuel policies can have negative or positive social outcomes depending on their design and implementation.

Second, the same policy can affect poverty and inequality differently. This is the case, for instance, when a policy provides economic support for lower-income groups, reducing poverty, but benefits higher-income groups even more, therefore widening the wealth gap. For example, incentives for electric vehicles and building retrofits tend to decrease poverty given that those sectors are highly labour intensive, but they are also likely to increase inequality, as wealthier groups can take advantage of the direct benefits of these incentives more easily.

And third, context matters: for example, national circumstances such as average household energy spending, car ownership rates, and how much of a country’s job market is made up of informal employment can greatly affect the direction and magnitude of the social outcomes stemming from energy policies.

Our analysis finds that energy policies implemented during the pandemic by the above-mentioned governments and institutions are likely to reduce poverty more significantly than inequality: 60% of these policies will likely decrease poverty while only 11% are likely to decrease inequality.

The same policies also carry a higher risk of increasing inequality instead of poverty: without complementary social policies, up to 44% of these policies are likely to increase the gap between rich and poor. This illustrates that governments focused mostly on immediate, untargeted relief to households and industries during the pandemic without consistently accounting for how impacts would be distributed across different economic groups.