Taxes and Subsidies and the Transition to Clean Cooking: A Review of Relevant Theoretical and Empirical Insights

Abstract

United Nations Sustainable Development Goal 7.1 sets a target of ensuring universal access to affordable, reliable, and modern energy services by 2030. Unfortunately, many low- and middle-income countries (LMICs) are well off course to meet this target, especially with respect to access to clean cooking energy. Though many challenges impede progress, cost barriers are perhaps most significant. This report discusses the role of subsidy and tax policies—levied on both the supply and demand side of this market—in affecting progress toward universal access to clean cooking in LMICs. Moreover, we also combat a common myth among those opposing subsidies for clean cooking: we show that a “fear of spoiling the market” with such incentives finds little empirical support in the literature. This report offers recommendations to policy makers, in addition to a case study on clean cooking transitions in Nepal.