Electricity consumption subsidies and social tariffs. A taxonomy based on design elements

Abstract

Despite being harshly criticised by many economic experts, electricity consumption subsidies are still widely applied, both in developing and developed countries. Many subsidies are implicitly provided by avoiding a complete pass-through of all the costs to the tariff. This kind of economic aid results in a generalised under-pricing that has limited impact on energy poverty. Other electricity subsidies are provided through explicit mechanisms, as social tariffs, which can have a higher efficiency in guaranteeing the coverage of basic energy needs. The objective of this article is to provide an all-encompassing classification of electricity consumption subsidies and then to focus on social tariffs, to identify their main design elements and to study how they affect the final outcome of the subsidy.

Despite being harshly criticised by many economic experts, electricity consumption subsidies are still widely applied, both in developing and developed countries. Many subsidies are implicitly provided by avoiding a complete pass-through of all the costs to the tariff. This kind of economic aid results in a generalised under-pricing that has limited impact on energy poverty. Other electricity subsidies are provided through explicit mechanisms, as social tariffs, which can have a higher efficiency in guaranteeing the coverage of basic energy needs. The objective of this article is to provide an all-encompassing classification of electricity consumption subsidies and then to focus on social tariffs, to identify their main design elements and to study how they affect the final outcome of the subsidy.