Amid the Gas Reform: How to Improve the Mechanism of Subsidies

In the analytical note “Should Ukraine have market prices for gas?”, we have stated that the success of the reform depends on four components:

1. Liberalization of the gas market and the creation of competition between the suppliers

2. Independence of this market regulator

3. Stimulation of energy efficiency

4. Protection of socially vulnerable citizens from increased gas prices

In this research, we study one of these four components – social protection of poor households. The increase in gas prices for the population took place on April 1, 2015, and later the government introduced a new subsidy mechanism. Since the main burden from the first increase in prices has already been felt by citizens, and the new system of subsidies has existed for almost a year, it is possible to assess now the effectiveness of this system. This note aims to investigate the effectiveness of the subsidy mechanism and the impact of this mechanism on the energy conservation stimuli.