WHO PAYS FOR ENERGY TRANSITION? DISTRIBUTIONAL EFFECTS OF FUEL SUBSIDY REFORM IN NIGERIA

With the implementation of the fuel subsidy reform, Nigeria’s energy transition, fiscal consolidation, and climate goals reform are becoming more achievable. However, it raises concerns regarding equity, welfare, and social justice. This article examines the economic effects of implementing fuel subsidy reform in Nigeria, focusing on the redesign’s cost implications, which are inescapably borne at different income brackets, geographical areas, and economic/social classes. This study utilizes an explanatory sequential mixed-methods approach, macroeconomic time series data (1995–2024), micro/macro data, welfare incidence analysis, and policy analysis using the ARDL model (which captures short and long-term effects using a structural and time series approach). The findings indicate that subsidy removal (SR) expands fiscal space, sustains external balance, and reduces regressive income (consumption) transfers to the wealthy. Yet, it brings short-term welfare loss to the impoverished. Escalated fuel prices, via the supply chain, cause a transport and food cost increases, inflation, and income erosion, which is more pronounced for the informally employed and the poor in urban areas. Without any of the social and economic guarantees from the state, the impoverished populations tend to be the most affected, although it is the social burden that typically goes unnoticed the most. Making them most angry when it comes to protests against any changes. It is most likely to shift the burden of any changes to reforms, as it will undermine the reforms\' long-term viability. Even when there are some targeted compensations, transparent revenue recycling, and some institutional adjustments aligned with the Just Transition framework, the inequality and social vulnerability Deepening is likely to be the consequence of subsidy reform with the above elements. The paper contributes to the energy economics and policy literature by assessing the interdependencies of fiscal efficiency, ecological sustainability, and social justice in the context of an oil-dependent economy in transition.