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The introduction of new policies promoting decentralized energy technologies is likely to have profound effects across all the nexus activities, including agricultural production, input use, and labor allocations. Thus, this paper analyzes the potential synergies and trade-offs created by the adoption of renewable energy technologies along the water–energy–food security nexus in Ethiopia. We use a mathematical programming-based household model to compare the impacts of fossil-based and renewable energy use on rural households’ livelihoods. Our findings show that only a 10% subsidy to the price of biogas digester considerably changes the energy mix of all types of households and increases the use of decentralized modern energy sources. Household crop production patterns are not changed substantially as a consequence of the biogas subsidy, despite the competition over resources between crop and energy production. Nonetheless, the subsidy policy can lead to family labor reallocation from collecting fuelwood to agricultural activities. Moreover, the biogas subsidy can improve household incomes. Specifically, the findings indicate that 10% biogas subsidy can lead to 0.93% and 3.44% increases in the net incomes of wealthier and poorer households, respectively, compared to the business-as-usual scenario, that is, also has a pro-poor dimension. Sensitivity analyses are carried out and it appears among others that more subsidy of the price of biogas digester leads to an increase in the net income of the two household types. Overall, the benefits generated by the biogas subsidy in terms of increases in net household incomes outweigh the total costs of the subsidy program. The findings indicate the importance of the subsidy policy to improve rural households’ welfare.

Published in Natural Resoures Forum.