Measuring the impact of energy reform—practical options

Following a decade of energy sector reforms in many developing countries, people are increasingly questioning how much these reforms have benefited the poor. That question has proved difficult to answer, in part because of the lack of a framework for thinking about the issue and in part because of a shortage of suitable data. This chapter proposes a methodology for measuring the impact of interventions in the energy sector on the welfare of poor households. Here, energy sector interventions refer to any measure that significantly affects the cost, quality, and conditions of access to energy services, whether wholesale sector reform or a small investment project. These interventions include restructuring, privatization, and liberalization of traditional electric and natural gas utilities. They also include policy decisions affecting the availability and relative prices of alternative energy sources, both traditional biomass and commercial fuels—perhaps of more immediate relevance to poor households. The aim of this methodology is not only to make it easier to answer questions about how energy sector interventions have affected the poor. It is also to help focus attention on poverty issues before interventions are made, encouraging the adoption of pro-poor features in the design. The proposed approach has two stages. The first is to provide a set of welfare indicators sufficiently broad to capture the kinds of energy issues likely to concern poor households. The second is to calculate the value of these indicators for poor households before and after the intervention to gauge its effect on their welfare. The process depends critically on the availability of data sets that combine information about energy use with indicators of poverty (Gomez-Lobo, Foster, and Halpern 1999; Lovei and others 2000). Measuring the welfare impact of energy sector interventions on the poor is not quite the same as measuring the impact on poverty. For example, an energy pricing reform might reduce the cost of electricity to poor households, directly increasing their welfare. The same price change might indirectly take some of these households out of poverty—by releasing women and children from the time-consuming task of gathering traditional fuel, or by raising productivity in household chores or in the operation of home-based microenterprises. Though measurable in principle, this ultimate effect is much harder to gauge with any reliability (Chong and Hentschel 1999). In particular, it is difficult to attribute changes in poverty to one intervention rather than another. Thus the more modest objective of examining how energy sector interventions directly benefit the poor is probably also more useful for impact evaluation. Message from the editors