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Raising household energy prices in Poland : who gains? who loses?

Author

Listed:
  • Freund, Caroline L.
  • Wallich, Christine I.

Abstract

The authors examine the welfare effects of increasing household energy prices in Poland. Their main finding is that the policy of subsidizing household energy prices, common in the transition economies of Eastern Europe and the former Soviet Union, is regressive. Such programs do help the poor by providing them with lower-cost energy, but they are more useful to the rich, who consume more energy. What is surprising is the extent to which Poland's nonpoor have benefited from lower energy prices. Non only do the wealthy consume more energy in absolute terms than the poor, but they also spend a larger portion of their income on energy. Their analysis allowed the authors to rule out the oft-used social welfare argument for delaying increases in household energy prices, but they do not try to recommend a dynamically efficient pricing path. The first-best response would be to raise energy prices while targeting cash relief to the poor through a social assistance program. This is far more efficient than the present go-slow price adjustment policies, which imply energy subsidies that provide across-the-board relief to all consumers. But if governments want to provide some relief for consumers to ease the adjustment, several options are available: in-kind transfers to the poor, vouchers, cash transfers, and lifeline pricing for a small block of electricity combined with significant price increases. Simulations show that if raising prices to efficient levels for all consumers is not now politically feasible, it may be socially better to use lifeline pricing and a large price increase rather than an overall (but smaller) price increase. Lifeline pricing for electricity in combination with an 80 percent price increase has better distributional effects than a 50 percent across-the-board price increase. Ideally, the public utility would be compensated from the budgtet for any reduced-price sales, rather than having to finance them through internal cross-subsidies. In-kind transfers to poor households are also effective in terms of efficiency, but may be harder to administer in some countries than lifeline pricing.

Suggested Citation

  • Freund, Caroline L. & Wallich, Christine I., 1995. "Raising household energy prices in Poland : who gains? who loses?," Policy Research Working Paper Series 1495, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1495
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    References listed on IDEAS

    as
    1. Meyers, Stephen & Schipper, Lee & Salay, Jürgen, 1994. "Energy use in Poland: An international comparison," Energy, Elsevier, vol. 19(6), pages 601-617.
    2. De Martino Jannuzzi, Gilberto & Schipper, Lee, 1991. "The structure of electricity demand in the Brazilian household sector," Energy Policy, Elsevier, vol. 19(9), pages 879-891, November.
    3. Kats, Gregory H., 1991. "Energy options for hungary a model for Eastern Europe," Energy Policy, Elsevier, vol. 19(9), pages 855-868, November.
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    Cited by:

    1. Singh, Anoop, 2006. "Power sector reform in India: current issues and prospects," Energy Policy, Elsevier, vol. 34(16), pages 2480-2490, November.
    2. Mr. Benedict J. Clements & Mr. Kevin Fletcher & Mr. Sanjeev Gupta & Ms. Gabriela Inchauste, 2002. "Issues in Domestic Petroleum Pricing in Oil-Producing Countries," IMF Working Papers 2002/140, International Monetary Fund.
    3. Julian Lampietti, 2004. "Power's Promise : Electricity Reforms in Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 14936, December.
    4. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
    5. Freinkman, Lev & Haney, Michael, 1997. "What affects the Russian regional governments'propensity to subsidize?," Policy Research Working Paper Series 1818, The World Bank.
    6. repec:hrv:faseco:30728045 is not listed on IDEAS
    7. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.

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