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What Are the Benefits of Government Assistance with Household Energy Bills? Evidence from Ukraine

Abstract:
On February 24, 2022, Russian Federation troops invaded Ukraine. Ukraine was previously at war with Russia in 2014, and in April 2015, the government abruptly raised the natural gas tariffs to residential customers. It also scaled up its energy assistance program, the HUS. We examine the welfare effects of the HUS. Using Ukraine's Household Budget Survey, we find that after the tariff hike, the average household that did not receive the HUS spends 11% of its income on electricity, gas, and fuels, meeting the definition of "fuel poor." The average share among households that do receive the subsidy is 6–8%. The HUS cuts the rate of fuel poverty in half and brings considerable consumer surplus gains (6% of income), at a price tag of 1–2.5% of GDP. Meaningful savings would be achieved with only a moderate loss of consumer surplus if the HUS was cut in half. Social tariffs or replacing the HUS with a one-time energy efficiency subsidy would be sustainable and entail modest or no welfare losses.

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Keywords: Fuel subsidies, Energy assistance, Consumer welfare, Fuel poverty

DOI: 10.5547/01956574.45.3.aalb

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Published in Volume 45, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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