Energy Subsidy Reform Assessment Framework: Assessing the Readiness of Social Safety Nets to Mitigate the Impact of Reform

This note provides guidance to policy makers who are looking to utilize Social Safety Nets (SSNs) to mitigate the welfare impacts of energy subsidy reforms (ESRs) on the poor. The good practice note explains (a) why SSNs are an effective tool in the context of ESR, and (b) different options for rapid scale-up or implementation of SSNs. It introduces a three-stage analytical approach that includes (a) assessing the welfare losses caused by ESR; (b) taking stock of existing SSN and near-SSNs, and modeling expansion options; and (c) assessing the readiness of the existing or planned SSNs for providing protection against the negative consequences of the price shock.

The scope of this good practice note is confined to cases where ESRs lead to higher prices paid by energy consumers. As good practice note one outlines, ESRs do not necessarily lead to higher prices, and could even decrease prices paid, such as when producer subsidies in the form of price support paid for by consumers are eliminated, or when consumer price subsidies lead to illegal diversion and out-smuggling, acute fuel shortages, and prices that are even higher than official prices on the black markets.