The Residential Energy Cost Reduction Programme in Hungary

Abstract

The article outlines the positive and negative effects as well as the policy context of Hungary’s residential energy cost reduction programme initiated in 2013. This programme has occupied a permanent and high-profile place on Hungary’s political agenda and has been shaping the country’s economic policy, energy policy and the everyday lives of Hungarian households. Both quantitative and qualitative methods are applied. The logarithmic mean Divisia index (LMDI) method is applied to decompose the absolute change in residential energy consumption between 2010 and 2017. The results show that decreasing energy prices for households had a positive impact on their energy use only in the first few years of the programme’s implementation. The authors conclude that the programme was realised without the necessary policy background. A significantly declining ratio of residential expenditure on energy services in total expenditure, decreased inflation rate and considerably improved socio-economic situation of the majority of the population are identified as positive effects. However, the programme discourages energy conservation and energy efficiency, erodes the competitiveness of renewables, reduces capital formation in the energy sector, deteriorates security of supply, and increases energy prices for non-household customers