Fuel subsidy removal and household welfare during energy transition: Evidence from Southwest Nigeria
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Abstract
The removal of fuel subsidy is a policy lever employed to facilitate the development of cleaner and more efficient energy systems. However, its legitimacy depends upon social sustainability outcomes. The present study examined the relationship between the removal of fuel subsidy and household welfare during the energy transition. The investigation utilized a sample size of 3,600 sample sizes from the six states in the region, thereby providing robust evidence from Southwest Nigeria. The present study demonstrates that subsidy removal has a detrimental impact on household welfare through both direct price effects and indirect inflation transmitted via transportation expenses. These welfare impacts indicate that sustainability transitions require ‘just transition’ measures, such as targeted compensation, to reduce adverse effects on vulnerable households while energy-market reforms proceed.
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