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The Hungarian utility cost reduction programme : An impact assessment

Author

Listed:
  • Csaba Weiner

    (Institute of World Economics, Centre for Economic and Regional Studies)

  • Tekla S. Szép

    (Faculty of Economics, University of Miskolc)

Abstract
In Hungary, regulated energy prices have been crucial in supplying electricity, district heating and natural gas to households, and as a result of a utility cost reduction programme, implemented in several stages starting from 2013, a sharp decline has been seen in these prices. However, this state intervention was performed without a strong policy background and the energy policy documents were just later adjusted to the prevailing situation. This paper focuses on the direct and indirect effects of this programme. The logarithmic mean Divisia index (LMDI) method is applied to decompose the absolute change in residential energy consumption between 2010 and 2017. We calculate price, intensive structure, extensive structure, expenditure and population effects. The results are in line with our expectations that decreasing energy prices for households had a positive impact on their energy use in the first few years. Overall, it induced an additional energy use of as much as 18.9 PJ between 2013 and 2017, while residential energy consumption stood at 263 PJ in 2017. We find that the state intervention created a new situation where the ratio of residential expenditure on energy services to total expenditure significantly decreased, the inflation rate declined and the economic and income situation of the majority, especially that of the middle class, considerably improved. However, the efficiency of the applied measures is still doubtful and several negative effects have also been detected. The utility cost reduction programme discourages energy conservation and energy efficiency; erodes the competitiveness of renewables; reduces gross capital formation in the energy sector; deteriorates security of supply; and increases energy prices for non-household customers. Despite these drawbacks, the utility cost reduction programme is expected to continue with some adjustments at most.

Suggested Citation

  • Csaba Weiner & Tekla S. Szép, 2020. "The Hungarian utility cost reduction programme : An impact assessment," IWE Working Papers 259, Institute for World Economics - Centre for Economic and Regional Studies.
  • Handle: RePEc:iwe:workpr:259
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    File URL: https://vgi.krtk.hu/publikacio/no-259-2020-04/
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    More about this item

    Keywords

    utility cost reduction; decomposition; energy consumption; residential sector; energy prices; energy efficiency; energy poverty; energy policy; energy investment;
    All these keywords.

    JEL classification:

    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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