Strategies for Affordable and Fair Clean Energy Transitions

Investment and energy bills

Who pays, and how much?

  • All parts of society need to play their role in successful, affordable and fair energy transitions, but what capabilities and interests are in play? In this chapter we explore how governments, households and companies interact in different ways with the energy sector to understand what is at stake as energy transitions progress.
  • Governments have unique capabilities to act and to set the rules of the game for others. Governments and state-owned companies account for around USD 1 trillion of investment each year (some 35% of total energy sector investment), largely into fossil fuels. Governments also subsidise the deployment of clean energy and the consumption of fossil fuels, with subsidies to fossil fuels being considerably larger.
  • The situation varies widely by country, but overall annual government revenues from taxes on energy production (mostly from oil) have averaged around USD 1.5 trillion in recent years. Governments also receive USD 1.8 trillion from taxes on energy use, again mostly from oil, and over USD 100 billion from carbon pricing instruments. In clean energy transitions, declining government revenue from taxes on fossil fuel production and use is partly offset by increased revenue from carbon pricing. Reductions in expenditure on fossil fuel consumption subsidies are offset by a rise in support for clean energy. There are major differences between countries, with severe strains on those that are heavily dependent today on hydrocarbon revenues.
  • Households make around 20% of the investments in energy today. These mainly come from higher-income households investing in efficiency improvements, rooftop solar, heat pumps or the additional upfront cost of an EV. Some 10% of this investment in clean energy is supported by governments in the form of grants or tax incentives.
  • Household energy bills are a major concern worldwide. They are highly unequal: lower-income households consume less energy, but they spend a larger share of their income on it (up to 25% in advanced economies) or leave energy needs unmet. Energy transitions could lead to major reductions in household energy bills and accelerate progress towards universal energy access. But managing upfront costs for poorer and rural households – as well as ongoing costs – remains a key public policy challenge.
  • The private sector makes up just under half of all investment in energy today. Energy transitions mean a shift in investment away from sectors with higher but more volatile returns on investment, such as oil and gas, to more regulated sectors such as power and networks. Energy-intensive sectors require particular attention; margins are thin, markets are often international, and low-emissions technologies for many processes are still under development or come with significantly higher costs.
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