A Just Transition Is Not Automatic: Exposing the Poverty Risks of Going Green

The global shift to renewable energy is often presented as a triple win: lower emissions, stronger economies and better lives. New research suggests the reality is far less automatic. In developing countries, the same transition that creates jobs and expands energy supply can also raise household costs, disrupt livelihoods and deepen poverty when governments move faster on consumption mandates than on infrastructure, affordability and social protection.

The study, "Does Green Transition Hurt the Poor? Evidence from Developing Countries," by Tai Lai Van and Monica Răileanu Szeles, was published in the journal Energies. Based on data from 74 developing economies between 2000 and 2022, it examines how poverty responds to renewable energy production, renewable energy consumption, public investment in renewables and ecological pressure. Its central finding is a "green transition paradox": building renewable capacity is associated with lower poverty, while increasing renewable energy consumption is associated with higher poverty.

A transition can be environmentally ambitious yet socially regressive if low-income households are asked to absorb higher tariffs, technology costs or subsidy reforms before clean energy becomes sufficiently abundant and affordable, the study warns.

Clean Energy Has Two Economies, and the Poor Experience the Harder One

The study doesn't treat renewable energy as a single economic force. It separates the supply side, how much renewable electricity a country can produce, from the demand side, how much renewable energy consumers are expected to use.

Renewable energy production can stimulate investment, create construction and maintenance jobs, expand electricity access and reduce dependence on imported fuels. New generation capacity may also support small enterprises, extend productive working hours and improve energy security in rural and remote areas.

Renewable consumption, however, can impose immediate costs. Developing renewable grids, storage systems, transmission networks and household technologies requires substantial capital. Governments and utilities may recover part of that cost through higher electricity prices, carbon taxes or the removal of fossil-fuel subsidies.

For middle- and upper-income households, these measures may be inconvenient but manageable. For poor families, they can trigger painful trade-offs. Energy is a basic necessity, and low-income households already spend a large share of their budgets on essential consumption. A tariff increase can therefore force reductions in food, healthcare, education or transport.

This is why the transition may resemble a regressive tax when poorly sequenced. The environmental benefit is shared broadly, but the immediate cost falls disproportionately on those least able to pay.

The study suggests that the poverty impact of renewable consumption depends on timing and institutional support. Consumption becomes socially risky when governments promote rapid adoption without first expanding supply, lowering technology costs and protecting vulnerable consumers.

Renewable Production Reduces Poverty

Using a two-step System Generalized Method of Moments model, the researchers find that renewable energy production is consistently associated with lower poverty. The result remains broadly stable across alternative specifications and poverty thresholds.

The study interprets this effect through several channels. Investment in renewable infrastructure generates employment, strengthens energy security and expands productive capacity. Decentralized systems can also reach communities that are too remote for conventional grid expansion, reducing energy poverty and supporting local businesses.

Public investment in renewable energy, the paper's proxy for green finance, also shows a significant poverty-reducing effect. Private investors often hesitate to enter projects with high upfront costs, long repayment periods and uncertain returns. Public capital can absorb early risks, demonstrate government commitment and attract additional private finance.

However, the quality of investment matters as much as its volume. A solar farm that exports power without improving local access may contribute little to poverty reduction. A green bond that finances capital-intensive infrastructure without generating jobs may deliver climate gains while bypassing vulnerable communities.

Green finance should be assessed not only by emissions avoided or megawatts installed, but also by energy access, employment creation, local procurement and affordability. This is important for international financial institutions and climate funds. Concessional lending, guarantees and blended finance can reduce capital costs, but projects should include measurable social outcomes. Otherwise, governments may build impressive renewable portfolios while households continue to face unaffordable electricity and insecure livelihoods.

The study also finds strong poverty persistence: the coefficient on previous poverty levels exceeds 0.8 in most models. Poverty, in other words, does not disappear quickly when economic conditions improve. This inertia strengthens the case for combining energy investment with targeted transfers, skills programmes and broader development policies.

Developing Economies Still Depend on a Dirty Route Out of Poverty

One of the most uncomfortable findings is that a larger ecological footprint is associated with lower poverty in the short to medium term. It reflects the development model on which many lower-income economies still depend. Resource extraction, energy-intensive manufacturing, construction and low-skilled industrial employment can generate income quickly, even as they increase emissions and environmental pressure.

The finding exposes a fundamental transition dilemma. Carbon-intensive industries may be environmentally damaging, but they often provide jobs to workers who lack the qualifications needed for emerging green sectors. Closing or regulating these industries without creating viable alternatives can reduce emissions while increasing economic insecurity.

This is the political economy behind the call for a "just transition." The challenge is not simply to replace fossil fuels with renewable energy. It is to replace livelihoods, local tax revenues, supply chains and economic identities built around older industries.

The study's regional analysis reinforces this point. Poverty in lower-income countries appears more sensitive to changes in green and macroeconomic variables, reflecting weaker institutions, tighter fiscal constraints and lower adaptive capacity. Sub-Saharan Africa shows particularly high vulnerability, while renewable production does not translate into statistically significant poverty reduction in every regional model.

The heterogeneity means a single global transition template is unlikely to work. Countries differ in grid quality, labour markets, fiscal space, industrial structure and access to finance. A subsidy reform that succeeds in one setting may provoke hardship or political backlash in another.

A Just Transition Must Be Designed, Financed and Measured

The study's policy message is not to slow climate action, but to make its distributional consequences central to policy design. Governments should expand renewable production before imposing steep consumption-side adjustments. Lifeline tariffs, targeted cash transfers, affordable credit and time-bound subsidies can shield poor households while preserving incentives for efficiency. Universal energy subsidies may be fiscally expensive and poorly targeted, but removing them without compensation can worsen poverty.

Labour policy is equally important. Workers leaving fossil-fuel, mining or polluting manufacturing sectors need more than short training courses. They require credible pathways into new employment, income protection during transition and investment in regions likely to lose industries.

Green projects should also develop domestic supplier networks rather than rely entirely on imported technology and expertise. Local manufacturing, maintenance and engineering capacity can make renewable investment a source of structural transformation rather than merely an infrastructure purchase.

Public renewable investment captures only one component of green finance and excludes private climate finance, green credit and bond markets. The analysis does not directly include institutional quality, inequality, education, governance or green innovation. It also identifies associations rather than proving that every increase in renewable consumption causes poverty.

Non-linear effects remain another open question. Renewable consumption may increase poverty during the expensive early stages of transition but reduce it later as technology costs fall and infrastructure improves. Household-level studies are needed to identify who pays, who benefits and when the relationship changes.

Climate policy cannot be judged only by the speed of renewable adoption. A transition that cuts emissions while increasing energy insecurity or pushing families below the poverty line is neither socially durable nor politically sustainable.