Can climate finance effectively address the welfare losses arising from energy poverty?

Energy poverty continues to be a challenging problem in numerous nations, making research on ways to alleviate energy poverty imperative for achieving sustainable development. This paper investigates the impact of climate finance on the energy poverty-induced welfare losses relying on a global panel dataset for 143 countries from 2005 to 2019. We also explore the heterogeneous effect between the two, as well as the potential impact mechanisms. The primary finding suggests that climate finance significantly reduces the welfare losses arising from energy poverty, which means that stimulating climate finance is an essential way to relieve the adverse outcome of energy poverty. Second, we explore their heterogeneous nexus and find that the effect of climate finance on the energy poverty-induced is heterogeneous across men and women, as climate finance is more effective in reducing male welfare losses. Third, we also pay attention to three impact channels through which climate finance affects the welfare losses arising from energy poverty – income inequality, energy intensity, and renewable energy development. The mediation effect results highlight that climate finance can indirectly lead to eradicated welfare losses arising from energy poverty by mitigating income inequality and energy intensity while promoting renewable energy development. These findings provide evidence for policymakers to tackle energy poverty issue by developing climate finance.