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.


INTRODUCTION
On February 24, 2022, Russian Federation troops invaded Ukraine.As of the time of this writing (39 weeks later), Ukraine has mounted a fierce resistance against the invaders, but numerous attacks have been brought against civilian targets in several Ukrainian cities, and many residentials buildings have been severely damaged by Russian missiles and artillery. 1Several western nations have imposed economic sanctions against Russia's president Putin, assorted oligarchs, and Russian businesses and financial institutions.As natural gas and oil from Russia account for large shares of the energy imports of many European nations, additional upward pressure on energy prices is expected to follow from these measures in markets already subject to significant supply constraints (Oxford Institute for Energy Studies, 2022)  We will leave to others the uncover the true reasons why Russia invaded Ukraine-whether it is the imperialistic goals of Russia's autocratic leadership (Politico Magazine, 2022), the desire to appropriate hydrocarbon-rich areas of the country (e.g., the Donbass region), strategic considerations and protection of access to western and middle eastern energy markets, or the intention to keep Ukraine dependent on Russia for its energy needs (Maddow, 2019, p. 203-244).We simply wish to point out that if and when a ceasefire is agreed upon, Ukraine will have to deal with reconstruction and will need to seek ways to help provide energy to its population at affordable prices.
It wouldn't be the first time in recent years that Ukraine suffers major shocks to its energy supply.One major pipeline from Russia to Europe goes through Ukraine.As a natural gas transit country, Ukraine has in the past been able to avail itself of natural gas from Russia at low prices and has enjoyed sizeable transit revenues.In 2006, Russia interrupted his shipments of natural gas in mid-winter, only to resume them later out of fear of losing the European markets.In 2014, Ukraine's energy security was severely challenged by Russia's occupation of Crimea, military action in the eastern part of the country, prolonged gas price negotiations with Russia (with final rulings issued in 2017 and 2018; IEA, 2021) and a sharp drop in shipments of natural gas through Ukraine (IEA,  2021).
In this latter instance, Ukraine received assistance and advice from international organizations, including the International Monetary Fund, the World Bank and others.It was forced to raise the price of natural gas to bring it in line with international gas markets: In 2015, within a matter of months, the price of natural gas increased seven-fold.The price of district heating, which relies on natural gas and supplies some 20%-30% of the population, was likewise raised.The implicit subsidies to natural gas consumption, which in 2015 accounted for some 5% of GDP, were thus eliminated.The universal nature of these implicit subsidies means that heavy users of natural gaswhether wealthy or otherwise-received a disproportionate share of them (Coady et al., 2015).
This paper focuses on the energy price reforms that took place in Ukraine in 2015-16, and on the measures subsequently introduced by the government to soften the impact of the extreme tariff hikes.We examine the accomplishments of the main energy assistance program, consider possible redesigns of it, and discuss ways in which it can help reduce Ukraine's natural gas consumption and hence dependence on imports.
Prior to their elimination, Ukraine was certainly not the only country in the world to have fuel subsidies.Fuel subsidies consumed $4.7 trillion worldwide-or 6.3% of global GDP-in 2015 and are projected to remain large in the near future (Coady et al., 2019).Fuel subsidies occur when the government imposes that fuels or electricity be sold at prices below the marginal and/or average cost of producing and distributing them to customers (Coady et al., 2018), 2 or when a preferential tax rate is applied to a specific fuel (e.g., diesel).
Fuel subsidies are usually motivated by the desire to help poorer households, achieve full electrification, and protect the standard of living and health of the population.A large body of research, for example, has linked insufficiently heated dwellings to higher wintertime morbidity and mortality for their occupants (e.g., Clinch and Healy, 2000; Aylin et al., 2001; World Health Organization, 2018; Huebner et al., 2019).
Subsidizing energy inputs however results in excessive consumption and insufficient revenues, leading to adverse environmental consequences, substandard supply, service interruptions 2. Kotchen (2021) examines the subsidies implied by the fact that fossil fuel prices do not include the environmental public health and transportation externalities associated with their use.He calculates that US suppliers of natural gas receive subsidies equivalent to some 18% of the net income from continuing domestic operations for the median natural gas and oil producer in 2017-2018, and that they exceed net income for the majority of coal producers.(Timilsina et al., 2018), and inadequate investment in production, transmission and distribution infrastructure (McRae, 2015; Hancevic et al., 2016).Subsidies contribute to inequality, foment social unrest (Goncharuk and Cirella, 2020), reduce welfare (Hahn and Metcalfe, 2021), and limit fiscal space for other public sector interventions (Coady et al., 2015).
In recent years, several countries have undertaken energy pricing reforms to reduce or eliminate fuel subsidies.For example, starting in 2016, Argentina gradually removed the subsidies on natural gas and electricity for residential customers, and was thus able to reduce the subsidies' share of GDP by more than half, from 3.5% in 2014 to 1.4% in 2019 (Giuliano et al., 2020).Busheiri  and Wohlgenant (2012) examine the effects of removing the price subsidies for residential electricity in Kuwait, which as of 2008 accounted for some 4% of GDP.Repealing energy subsidies may also be part of policies aimed at reducing CO 2 emissions (Rosas-Flores et al., 2017).
To reduce the burden on the population, the Ukrainian government revamped and scaled up the existing means-tested energy assistance program-the Housing Utilities Subsidy, or HUS.Enrollment in the program spiked up around September 2015, and the HUS is estimated to have covered at certain times up to 40-50% of the households.It quickly became the largest social assistance program in Ukraine, costing around 2.5% of GDP. 3 Until 2019, the assistance-which is calculated according to a non-linear formula based on income and normative consumption-did not involve any cash transfers to the households: It was simply deducted from the household's bills.In May 2019, the government started "monetizing" the HUS, which means that the households receive it as a cash transfer instead of a bill discount settled at the level of the utility companies.
Other countries (e.g., Iran, Egypt, Nigeria) have sought to implement price hikes of comparable magnitudes and compensation schemes for their citizens, but have been forced to roll back or delay such initiatives. 4Ukraine's natural gas price reform stands out for its record and experience, in that the price increases were extreme and sustained over time, in large part because of the measures taken to alleviate the burden on the vulnerable population.
While the original, artificially low natural gas tariffs provided untargeted subsidies to all households, the HUS and variants of it considered in this paper are a form of targeted assistance, in that they seek to help the households that are the most vulnerable to fuel poverty.Despite its large fiscal cost, the net effect to the budget was fiscal savings due to elimination of over 5-6.5% of GDP (2014-2015) in universal subsidies provided via low energy prices. 5The design of Ukraine's HUS 3. In 2016, for example, HUS disbursements to households totaled 52,600 million UAH, or some 13% of all social protection programs in Ukraine (Bornukova et al., 2019).
4. In Iran, for example, in December 2010 energy prices were raised by a factor of 3 to 9, depending on the fuel, while the price of bread doubled (Salehi-Isfahani, 2014).Iran's reform was accompanied by very large-but untargeted-expansion of social assistance to households.In Iran, the excessive generosity of the government assistance, which covered at some point 95% of the households, contributed to the deterioration of the fiscal and macro-economic conditions (Salehi-Isfahani, 2014).The price reforms were put on hold, to be resumed at a much more gradual pace in 2014, under President Rouhani (Atansah et  al., 2017).And, unlike in Ukraine, in the first phase the reform measures did not lead to commensurate fiscal gains for the government due to the large coverage of the compensatory cash transfer scheme.Egypt experienced a significant energy price and tariff reforms in July 2014 (Griffin et al., 2016).The price of natural gas was raised by 122% if used for transport, and 100% if used by residential customers.The price of diesel was raised by 55%.The reforms reduced the subsidies as a percent of GDP from 8% to 6%.As to Nigeria, as of December 2011, the subsidies on gasoline alone accounted for 4.1% of GDP (Atansah et  al., 2017).In January 2012 the government rescinded the subsidy but strikes and protests forced it to reinstate them.The plan was to raise the price of gasoline by 117%, but because of the protest the government scaled that back to 49% by mid-January.The government had also proposed a plan to re-distribute the saved subsidies through maternal and child health services, urban mass transit, public works and similar programs, but this plan essentially stalled.By 2016, the subsidies had resumed but no progress had been made in terms of the redistribution plan.
itself is unusual, as it combines two targeting elements that are not typically applied jointly to target vulnerable customers with high energy burden-income assessment and the expected volume of energy consumption.Another marker of successful implementation is that by August 2020 Ukraine managed to transition to a liberalized residential natural gas market where consumers paid lower prices than those set by the government at the end of 2018.
In this paper we examine the effect of this large-scale energy assistance program, as well as program design tradeoffs in terms of program generosity and targeting that may be helpful with future tariff reforms and energy markets.We ask three main questions.First, did the assistance program offset the tariff hikes and provide relief for the most vulnerable segments of the population?Second, did the assistance program end up helping heavy (and potentially wealthier) consumers, namely those that were already taking advantage of the artificially low price of natural gas before the tariff reforms?Third, are there alternative energy assistance designs that perform better in terms of cost to the government and welfare effects?For example, should the HUS be replaced by general poverty assistance based on income status targeting poor families and decoupled from gas consumption?Or paired with social tariffs to make it more sustainable?What are the potential tradeoffs between generosity, fiscal cost, and welfare gains?
We answer these research questions using up to six waves of Ukraine's Household Budget Survey.Attention is restricted to natural gas consumption in households that use natural gas for space heating (almost half of the households in Ukraine).We examine i) the share of household income spent on natural gas, ii) the share of the population that experiences fuel poverty, and iii) the consumer surplus change from removing the HUS or redesigning it.We further examine how these metrics vary across the joint distribution of income and gas consumption.
Briefly, we document pervasive fuel poverty: During and after the energy tariff reforms, even among households that were ineligible for government assistance, energy expenditure accounted for some 11% of household income.In other words, the average non-assisted household would be considered fuel poor by conventional standards, in that energy expenditures account for 10% or more of income (UK DECC, 2013).
Second, the HUS did help reduce the burden of the residential energy bills, managing to reduce the energy bills' share of income (or total expenditure) by as much as 10 percentage points and cutting the fuel poverty rate in half.One-third of the households however met the definition of fuel poor, even with the HUS in place.
Third, the HUS brought consumer welfare improvements on the order of 1,800 UAH per household per year (2014 UAH), or 6% of net income.The poorest families' consumer surplus gains are 9%-14% of income, those of middle-income families 4%-7%, and those of the wealthiest families 2%-3%.We further experiment with simple variations on the design of the HUS.Compared with the current assistance, we find that halving the HUS, for example, would imply a loss of welfare for the average household that is only 60% of that brought by targeting assistance only to the poorest families, while still saving considerable government funding.
Making the HUS assistance targeted to poor consumers (regardless of their gas consumption level) would bring a large loss of welfare, in part because many mid-and relatively higher income households are HUS recipients, but are above the poverty line and would lose the HUS assistance under this proposed redesign.More generous assistance to the poorest households would bring larger gains to HUS recipients, and even result in welfare gains for the average household, but would come with a high price tag for the government.
Notably, we find that the HUS has only a small effect on gas consumption and that the price elasticity of gas demand is low (Rosas-Flores et al., 2017; Durmaz et al., 2020; Busheiri and  Wohlgenant, 2014; Orlov, 2017), likely because of limited opportunities for substitution between fuels (Krauss, 2016).That the gas demand is relatively inelastic implies that social tariffs could be introduced to help finance the consumption of the poorest, and that they would be sustainable.Finally, we discuss the opportunities offered by fuel switching and by combining energy assistance with government energy-efficiency subsidies.
The remainder of this paper is organized as follows.Section 2 presents background information.Section 3 describes the methods and section 4 the data.Section 5 presents the results and section 6 concludes and offers policy implications.

The Residential Natural Gas Market in Ukraine
Ukraine has experienced a number of tariff reforms over the 1990s and in the early 2000s, like other transition economies and former Soviet Republics (Fankhouser and Tepic, 2007; Ersado,  2012; Krauss, 2016), but remained a highly energy-intensive, energy-inefficient country where natural gas was supplied to households-the second largest end user-at tariffs below cost. 6Structural changes and an overall decline in economic activity between 2013 and 2019 are considered the main reason for the drop in natural gas consumption (from 50.4 to 29.8 billion cubic meters) and increase in natural gas self-sufficiency (from 43% to 69%).As of 2019, the country however still depended on Russia for about one-third of its natural gas needs.
Until 2020 the residential natural gas tariffs in Ukraine were set exogenously by the regulator and generally remained unchanged for about a year. 7Over the course of three years (from 2013 to 2016) gas prices to residential customers increased dramatically-by over 700% in nominal terms-in part because of the deteriorating relationship, and eventual conflict, with Russia, which canceled deliveries to Ukraine, and in part to help the gas utility, which had until then been selling natural gas for industrial and residential use at highly subsidized rates, recover costs. 8ntil March 2015 consumers faced a one-part, increasing block rate tariff scheme based on annual consumption with a mid-year assessment (see Alberini et al., 2020, for details).This scheme was replaced in April 2015 by a two-block system during the heating season, with the block cutoff set at 200 m 3 per month, and uniform pricing (and a dramatically higher rate per m 3 ) the rest of the year.
In April 2016, the block system was dropped, and a uniform pricing scheme introduced.The rate was set at 6.879 UAH/m 3 , seven times the price that customers who use less than 200 m 3 per 6.As of 2016, Ukraine relied on fossil fuels (coal and natural gas) for more than two-thirds of its energy needs (https:// www.eia.gov/international/analysis/country/UKR), on nuclear power for about 23%, and on oil for some 10%.Renewables accounted for only 3% of Ukraine's energy needs.
7. Gas prices were regulated by the National Commission for State Regulation of Energy (NERC) from October 23, 2011 to October 1, 2015.The Ukrainian Cabinet of Ministers has been regulating the price of gas as an "energy carrier" ever since, while NERC retains the authority to set prices for gas distribution and transmission.
8. Prior to the 2015 tariff reforms, Ukraine had the lowest household gas prices in the industrialized world and its economy had a degree of energy intensity comparable to that of Russia, but "without the latter's natural resource endowment" (Emerson and Shimkin, 2015, p. 3).Calculations by Fankhauser and Tepic (2007) based on pre-2006 data show that Ukrainian households were, on average, able to pay their utility bills "without problems," and that affordability would have remained very good even if tariffs had been raised to ensure cost recovery in 2007.
month would have paid only 13 months earlier. 9In April 2017, the tariff was slightly raised to 6.958 UAH/m 3 .This tariff remained in place until October 2018, and in November 2018 was replaced by 8.549 UAH/m 3 . 10The rates were reduced in 2019 and 2020, and starting in August 2020 consumers were allowed to choose their gas supplier.
Electricity tariffs rose during the same four-year period, but at a lower rate (no more than 50% from one tariff regime to the next) and more frequently (Alberini et al., 2019).District heating tariffs vary across locations and district heating companies, but perusal of the variable tariff per gigacalorie (the unit of measurement for district heating) shows that they quadrupled in 2017 and quintupled in 2018, compared to their 2013 levels. 11hat we have described above are the rates for regular residential customers.In practice, in Ukraine persons in certain professions (e.g., civil servants, the military, retirees, veterans, Chernobyl decontamination workers) receive so-called "benefits" (or "privileges"), namely discounted tariffs for the portion of their gas consumption that falls below a specified "allowance."The allowance is calculated by the government following a precise formula that takes into account family size, dwelling size, the number of stories of the building, whether gas is used for heating, cooking and/or hot water, and is seasonally adjusted.The allowances thus create additional tiers, and the discounts with respect to the regular tariffs bring additional variation in rates. 12

Government Energy Assistance
The sharp increases in natural gas rates for residential customers in April 2015 and a year later triggered massive increases in the prices of many other goods and in the consumer price index and were a major cause of distress among the population.Government assistance however was available to help families pay their utility bills.The government assistance, or "Housing and Utility Subsidy" (HUS), varies across eligible households and is effectively a lump-sum transfer meant to help cover the utilities.Until May 2019, households did not actually receive cash: The assistance amount was simply subtracted from the utility bill, thus reducing the balance due.
The exact procedure for computing the HUS amount, including the social norms (eligible energy allowances) can be found in Cabinet of Ministers Decree 409.As we explain in more detail below, the HUS assistance does not depend on the household's current or historical consumption, and there is no way for a consumer to influence the HUS amount by choosing their energy consumption.This is important for our econometric models (see section 4).
The amount of the HUS is computed in three steps.The first step calculates the total energy allowance bill, based on the social norms consumption, which depends on household size, eligible dwelling size, type of fuels used, and is regionally and seasonally adjusted.To illustrate, the regulations first determine the eligible living area according to household size (e.g., 40 sq.m. per person).The regulation then assigns a social norm allowance for heating the living area.For example, in 2016-17 it was 5.5 cubic meters of gas per 1 sq.meter of eligible living area that uses gas for heating.Natural gas can also be used for cooking and heating water, so the regulations for 2016-17 further specify 4.4 cubic meters per person per month for households that use gas for cooking, 14 9.The exchange rate was 28.77 UAH per euro on April 15, 2016 (see https://freecurrencyrates.com/en/exchange-rate-history/EUR-UAH/2016/nbk).
10.The tariffs are inclusive of 20% Value Added Tax (VAT).11.See https://www.nerc.gov.ua/?id=24773.12. Eligible households are enrolled automatically for benefits on the basis of professional status, services rendered to the government, date of birth, or family status.Within the allowance, the tariff is reduced by 20% to 75%, depending on professional or personal status.cubic meters per person per month for households that use gas for cooking and hot water, and so on. 13These values are revised annually and vary by region and by season.
Social norms are also specified for electricity and district heating.The social norms allowances for each type of energy input are then converted into UAH at the current energy prices and summed to arrive at the total social norms "bill" (henceforth denoted with the acronym BSN).
The second step estimates the value of the mandatory share of out-of-pocket expenditure, which varies with household income and size.The exact formula is: where MP is the mandatory out-of-pocket payment, Y is income per household member, the minimum subsistence income is established by the government, and N is the number of household members.Note that MP is lower for lower-income households and increases for higher-income households with an implied threshold effect, in that MP cannot be more than the actual bill.The final step computes BSN-MP.A positive difference between the two amounts is the HUS assistance; a negative value implies that the household is ineligible for assistance.None of the three steps involves taking a reading of historical or current consumption.Note that the actual energy bills may be higher, lower o just about equal to BSN.The HUS is then distributed across the utility bills-those for electricity, gas, district heating, water, and sewage-in proportion to that bill's share of the total utility bills.
By 2017, almost half of the households in Ukraine had received HUS assistance.Because eligibility is based on both social norms and income, the HUS assistance is by design more targeted than the implicit subsidies received by natural gas users when the tariffs were artificially kept below the price of gas on the international market, and pipeline and distribution costs.

Energy Efficiency Programs
One way to reduce the burden of the residential energy bills would be to improve the thermal integrity and the energy efficiency of homes.The residential sector in Ukraine accounts for half of all gas consumption and has a very large energy efficiency potential.Furthermore, without substantial improvements in energy efficiency, affordability will continue to be a critical issue, especially for low-income households.
A number of programs in Ukraine help finance energy efficiency upgrades in buildings (both privately and government-owned) and modernize infrastructure.The two that most directly affect homeowners are the Warm Loans program (which started in 2014) and the Energy Efficiency Fund (which started in 2019 and targets primarily homeowners' association in multi-family buildings).Under the Warm Loans program, individual homeowners obtain loans to pay for certain types of energy efficiency upgrades.The government reimburses the homeowners up to 35% of the principal of the loan (20% if for a boiler, but 35% if the homeowner has received the HUS), up to a certain cap.
While the Warm Loans program targets households, the Energy Efficiency Fund grants are intended for homeowners associations, which can seek reimbursement for energy efficient retrofits in multi-family buildings, including thermal insulation of the building envelope as well as relatively inexpensive improvements, such as installation of heating metering devices or replacing the boiler.
Clearly, out of these two programs, the Warm Loans is the one that might more readily be combined with the HUS program to incentivize graduation out of fuel poverty.

METHODS
We document the effect of the natural gas tariffs reforms of 2015 and 2016, and assess the effects of the HUS, using data from several waves of Ukraine's Household Budget Survey (HBS14 ) and three main metrics.First, we examine the bills as share of household income or expenditure before and after the tariff hikes, with and without the HUS.Second, based on such shares, we examine the fraction of the population that experiences fuel poverty, in that energy and fuel bills exceed 10% of income.We accomplish these tasks using up to six waves of the HBS (from 2014 to 2019).
Third, using the 2017 and 2018 waves of the HBS, we compute the consumer surplus change attributable to the HUS itself-under the actual implementation of the program, and under hypothetical variants of it.We examine the distribution of each of these three metrics across income quartile and gas consumption quartiles to uncover key heterogeneity relevant to policy.
Finally, we develop several counterfactual scenarios with policy implications for more efficient distribution of energy assistance.Specifically, we ask how the consumer surplus would change if the HUS was altogether removed, halved, or replaced by a poverty relief program linked only to income and decoupled from fuel consumption.The welfare gains attributable to the HUS are thus the same, but opposite in sign, as those of removing it entirely.
In order to compute the consumer surplus, we must first estimate the demand for natural gas.Due to data limitations, attention is restricted to those households that use natural gas for space heating (some 58% of all HBS households), to the gas HUS, and to the data from 2017 and 2018, when a one-part tariff with constant price per unit of gas was in place, and the price was virtually constant over time, which allows us to compute quantity demanded from the expenditure and HUS data reported in the HBS.
Ideally, we wish to estimate where Q is gas consumed during the year, P is the price of natural gas, hinc is household income, x is a vector of dwelling, household and location characteristics, and β and γ are the price and income elasticities of demand, respectively.However, the tariffs were stable in 2017 and 2018, and the share of households who received discounted gas tariffs due to professional or protected category status ("benefits" or "privileges") during those years is only 6-7%, which means that we lack the variation necessary to fit demand function (2).
To get around this problem , we assume that the gas HUS acts as a price subsidy.Under this assumption, the effective price per cubic meter of gas is , where P is the regular price (or the discounted price if the household is entitled to privileges).Clearly, P i * is equal to P i when the household does not receive the HUS, and will be lower than P i otherwise.P i * thus replaces P i in equation ( 2).After obtaining estimates of the parameters in (2), the consumer surplus lost if the HUS is removed is equal to the consumer surplus loss when prices go from P i * to P i . 15,16o compute the welfare change brought by hypothetical alternate HUS schemes, compared with the actual HUS scheme, we need an additional step to help us translate the proposed schemes into a (new) effective price.We implement this additional step by assuming momentarily that the HUS can be thought of as a demand shifter and entered as such in the gas demand function.We further constrain the price elasticity in equation ( 2) to be equal to a plausible value, β , from earlier studies, move β ⋅lnP i to the left-hand side of equation and obtain: Note that in equation ( 3) the log of the gas HUS assistance enters as a separate regressor, and not as part of income, since the gas HUS can only be applied to the gas bill and is not cash that can be spent on anything else-at least not during our study period. 17In other words, we have no reason to believe that households would consider the gas HUS as additional income.
We use the estimated coefficients from regression (3) to predict what the household's gas consumption would be under different HUS schemes.For each such scheme we compute a new effective price ′ P i * as the difference between the bill at the regular tariff minus the (new) HUS, divided by predicted consumption Qi : Less generous schemes than the current HUS will imply that c ! P P i i * * , where P i * is the effective price implied by the actual HUS level.Other schemes may offer assistance to households in our sample that previously did not receive the HUS, in which case c P P i i * , or reduce it or eliminate it completely for others.
The welfare change attributable to these hypothetical HUS redesigns-compared to the actual HUS-is computed as the consumer surplus associated with a change in the effective price from P i * to ′ P i * , based on demand function (2).In what follows, we set β in equation (3) to -0.16, the price elasticity of demand in Alberini et al. (2020) based on gas-using households in Uzhhorod in Western Ukraine.

Construction of the Sample
We use up to six waves of Ukraine's Household Budget Survey (from 2014 to 2019).Each wave covers about 8000 households and collects information about expenditures and income 15.Note that we effectively compute the consumer surplus change attributable to the HUS at the high price level.In other words, due to data limitations we do not seek to compute the loss of consumer surplus that was experienced when the prices were raised from their 2014, still-low level to the high levels of 2015-16.The HUS was presumably seeking to compensate the consumers for such extreme price increases, but we lack the information needed to determine whether the HUS over-, under-or just-compensated them (i.e., whether the HUS received was larger or smaller than, or just about equal to the compensating variation or the consumer surplus change caused by the 2015-16 tariff hikes).
16.The exact formula for the consumer surplus change is Q p dp exp P dp P P ), P* is the implicit price, and P is the regular, high price of natural gas in place in 2017-18.17.In May 2019, the HUS was monetized, i.e., it became a cash payment and was no longer directly applied to the bills.Unfortunately, we only have annual expenditures, income and HUS for 2019, and the quality of the 2019 HBS in our possession is doubtful, which means that we are unable to assess the effect of the monetization using the HBS data.
over the entire year.A household participates in the HBS only once, so when we pool the abovementioned six waves of the HBS we form a multi-year cross-section, and not a panel dataset.We merged these data with the national and oblast-specific consumer price indices,18 the gas tariffs, and oblast-specific heating and cooling degree days in each year (the HBS reports the oblast of residence but not the exact city, town or village where the household lives).Heating and cooling degree days are important determinants of the demand for heating and cooling (Summerfield et al.,  2015).Ukraine averages about 4,000 heating degree days a year (base: 18° C).The heating degree days were practically the same in 2017 and in 2018, the two years that we examine in detail below.
The purpose of any household budget survey is, of course, to document income and expenditures.Figure 1 summarizes total annual household income (inclusive of government assistance, whether HUS or another type) over the six waves of the HBS, confirming that the country was in a recession in 2014 and 2015.The country's GDP fell by 6.8% in 2014 and 9.9% in 2015 (IEA, 2021).The HBS contains some information about housing tenure (showing that 92% of the households own their homes), the structural characteristics of the dwelling, and appliances.For example, we know if the home is served by piped natural gas and/or district heating, and is equipped with a gas water heater or an electric stove.The exact nature of the heating system however must be inferred.We assume that if the household has district heating but is also served by piped natural gas, the latter is used for cooking and/or heating water.
If a home is connected to the natural gas network and zero district heating expenditure is reported, we assume that natural gas is used for space heating, for heating water (as long as there is a gas water heater), and for cooking (unless the household uses an electric stove).The datasets also specify whether the dwelling is on a centralized, or on a separate and independent, heating system.
The share of the sample served by the different types of fuels or heating is very stable across the 5 waves of the HBS.About three-quarters of the sample are served by piped natural gas.About 31% of the households are served by district heating.About 45% of the sample uses piped natural gas for heating, 15% uses piped natural gas to feed its water heater, and only 5% uses electric cooking stoves.

Natural Gas Usage
About three-quarters of our full HBS sample use piped natural gas; 48% of all households use piped natural gas for space heating.Fully 80% of the latter use their own individual heating system (as opposed to one in common with the rest of the building).About 58% of those who use gas for space heating live in single-family homes, 20.7% live in apartments in multi-family buildings, and 21.6% has other living arrangements.
For 2017 and 2018, we can compute the quantity of piped natural gas consumed during the year from the expenditure on gas and the gas HUS, if received by the household, because by 2017 the block tariff system had been removed and the gas tariffs were stable.In those two years, the price of gas to the consumers was on average 6.96 UAH/m 3 and ranged between 3.47 and 7.22 UAH/m 3 (nominal UAH). 19The implicit price of gas, after factoring in the HUS (P* in section 3 of this paper), was on average 4.46 UAH/m 3 , and ranged between 0.003 and 7.22 UAH/m 3 (nominal UAH). 20able 1 summarizes the annual gas consumption levels in 2017 and 2018.They were similar, in part because the price of gas was essentially unchanged over two years and in part because the weather was very similar in those two years (bottom panel of Table 1).The average household uses about 800 cubic meters of natural gas a year.The average household that uses natural gas for space heating uses about 1100 cubic meters of natural gas a year.21.Technically speaking, the household sizes and the shares of households served by gas water heaters are statistically different across 2017 and 2018, but in practice the differences are very small.Household income is greater in 2018, confirming figure 1 and the notion that the economy was growing again after it contracted in 2015.
Figure 2 presents histograms of gas consumption for households that did, and did not, respectively, receive HUS assistance (2017 and 2018 combined).The samples are restricted to those households that use gas for space heating.This figure conveys an important piece of information: The distribution of gas consumption for HUS recipients is to the right of that for the other households.In other words, HUS recipients tend to consume more gas.This raises the question whether HUS recipients get HUS assistance because they consume more, or increase consumption because they receive assistance, or do a little bit of both.We remind the reader that the HUS amount does not depend on the household's actual historical consumption: It is calculated solely based on i) the social norms, which depend on household size, eligible home size, type of fuels, and are regionally and seasonally adjusted, and ii) household income per household member.In other words, the household cannot influence the HUS amount it receives by being spendy or thrifty with its energy use.We thus regard the HUS amount as exogenous to the household.The data however prevent us from applying panel-data techniques or difference-in-difference designs, forcing us to cross-sectional type of analyses.
Based on the HUS formula, we expect HUS recipients to be living in larger homes and in colder parts of the country, and to have larger families and lower incomes than non-HUS households.Table A.2 in the Appendix shows that this is indeed the case.Regarding income, Table 2 displays the share of households that fall in each quartile of the distribution of (net) income and each quartile of the distribution of gas consumption.This table shows how surprisingly evenly distributed households are in terms of income and gas consumption: The poorest families (those in the first income quartile) are not concentrated in the first or second consumption quartile, and the richest families (those in the fourth income quartile) are certainly well represented even in the lowest consumption quartiles.In other words, there is no strong relationship between income and gas consumption.These analyses, and the fact that the HUS is determined exogenously with respect to actual consumption, suggest to us that household receive the HUS, all else the same, because they consume more-and not the other way around.We further investigate this matter in our demand regressions below.

The HUS
We compared the HUS amounts reported by the HBS respondents with official administrative data, finding that the incidence and exact UAH received by the HBS participants match the official statistics (Alberini and Umapathi, 2021).Figure 3 displays the percent of the sample that received HUS assistance or "benefits" (due to their professional or protected category status) in each year. 22It shows that the shares of the households that receive the HUS increased rapidly from around 5% in 2014 to 50% in 2018.By contrast, the share of the households entitled to "benefits" dwindled over time, because by 2017 households were denied the chance to avail themselves of both HUS and "benefits," and were required to choose between them.22. Households on so-called benefits because of professional or social status receive discounts on the full tariffs of the utility.These discounts usually range from 25% to even 100%.
Were the households that received the HUS poor? Figure 4 shows that after 2014 HUS recipients were by no means limited to the poorest people, although the shares of HUS recipients are higher in the first three quintiles of the distribution of income.In 2017 and 2018, one-third of the households in the top income quintile received the HUS. Figure 5 presents another striking piece of information.While in 2014 almost half of the HUS disbursements went to the households in the first quintile of the distribution of income, in 2016 and 2017 the HUS was handed out almost evenly to all income quintiles. 23This tendency was somewhat moderated in 2018 and 2019, when the wealthiest 20% of the households received only about 12% of HUS.
Among households that use natural gas for space heating, HUS recipients received on average 4,558 UAH (2014 UAH) a year in 2017 and 2018-or 17% of pre-HUS income.The gas HUS was on average 2,563 UAH a year during that period, or 9.76% of net income.These figures confirm that the HUS was a generous program, and point to the difficulty of sustaining such payments to the population over a long period of time.

Effect of HUS on Energy Expenditure Burden
Table 3, col.(1), shows that for households that use natural gas for space heating, the full gas bill accounts for a large portion-more than half-of the total energy and fuel bills.Col. (2) presents the energy and utility costs as shares of net income for the subset of these households that 23.We are forced to omit 2015 from these statistics, due to insufficient documentation of the HBS in the 2015 HBS dataset we have received.
did not receive HUS assistance, and col.(3) presents the same information for those that do receive the HUS. 24In the latter group, the expenditure on utilities is equal to the original bills, minus the HUS.
While the shares were similar across the two groups in 2014, they were 5 percentage points apart in 2016 and the subsequent years-after the tariff hikes of 2015-16.It is noteworthy that in 2016-2018 the average share for non-HUS households is stable at 11%.In other words, even the average household that does not receive HUS assistance would still be classified as energy poor by conventional standards.
Shares of energy costs (natural gas, electricity and other fuels) between 6 and 11% of net income are fairly large when compared with other expenditure categories.Between 2014 and 2018, Ukrainian households spent on average 42%-45% of net income (54%-57% of total consumption 24.We define as net income household income minus the HUS (which Ukrstat adds to the other sources of income to compute total household income).Notes: 1) For household that do not receive the HUS, the expenditures are equal to the full bills.For households that do receive the HUS, the expenditures are the full bills minus the HUS.2) Net income is defined as total income (as reported in the HBS) minus the HUS. 3) Utility bills include electricity, gas, district heating, water, sewage, propane/liquid and solid fuels.4) The expenditures are net of the HUS, if the household receives the HUS.
expenditures) on food, and about 4%-5% of net income (5.7%-7% of consumption expenditures) on their own health.Table 4 presents the average energy cost shares of net income for households that use natural gas for space heating by income-gas consumption quartile, separately for households that do and do not receive the HUS.The HUS significantly mitigates the burden as shares are considerably lower among HUS recipients, especially for families in the first and second income quartiles.The contrast between the panels representing recipients and non-recipients of aid is especially stark for heavy gas users.We further examine fuel poverty in Table 5, which displays fuel poverty over time-if the HUS hadn't been granted (first column) and with the HUS (second column).The HUS appears to have reduced the fuel poverty rates in half.Yet, a good one-third of the households in Ukraine meets the definition of fuel poor, even when the HUS is in place.The importance of the HUS in reducing fuel poverty is further shown in Table 6.Panel A shows the percentages of the households in each income-gas consumption quartile cell that are classified as "fuel poor" (with electricity and domestic fuels bills in excess of 10% of income)-or would be, had they not received the HUS.Clearly, the percentages are highest at the lowest levels of income and among the heaviest gas users.What is striking is that in half of the income-usage cells virtually everyone would be classified as fuel poor.Panel B presents the same shares once the HUS is received.In the first quartile of the distribution of income, for example, the HUS reduced the rate of fuel poverty by half.Massive improvements are also observed in the top income quartile, especially at high consumption levels.

Estimating Demand
We report the results from fitting equation (2) in Table 7, col.(1), assuming that the HUS serves to reduce the effective price per cubic meter of gas.In other words, P i in equation in (2) is replaced by P i * , the effective price paid. 25(The prices entered in our regressions are expressed in real 2014 UAH.) Col.
(1) of Table 7 shows that the price elasticity of residential gas demand is -0.17, a figure that is very close to that (approximately -0.16) in Alberini et al. (2020) based on a sample from Transcarpathia. 26The income elasticity of demand is 0.28.Other variables that are expected to influence gas consumption, such as the size and type of the home, and the type of gas-using equipment used in the home, enter with the expected signs and are significant. Col.
(2) of Table 7 displays the results from fitting equation ( 3), where we constrain the price elasticity to be -0.16, and regard the HUS as a demand shifter. 27Again, the dwelling and 25.We remind the reader that the sample used for the regressions of Table 7 includes only the HBS households that use natural gas for space heating, and only the 2017 and 2018 HBS data.This is because the one-part tariff with stable, uniform prices makes it possible for us to compute the quantity consumed from the expenditure and HUS information.The tariff structure remained in place in 2019, but we are not satisfied with the quality of the data from the 2019 HBS at our disposal (the first release by Ukrstat), and for this reason we do not include the 2019 HBS data in our estimation effort.
26.The specification shown in Table 7 assumes that the elasticity is the same in both years.This assumption is supported by the fact that when the regression is augmented with an interaction between log price and a dummy for observations from the 2018 wave of the HBS, the coefficient on this interaction is -0.0196, with a standard error of 0.0212, and the coefficient on log price is -0.1634 (standard error 0.0141) (results available from the authors upon request).
27. White's information matrix tests indicate that heteroskedasticity is a concern in the regressions of col.( 1) and ( 2) of Table 7: The test statistics are 913.21(p value < 0.0001) and 1475.64 (p value < 0.0001), respectively.For this reason, we compute and display in Table 7 robust standard errors.We checked for possible multicollinearity between the right-hand side variables by computing their respective Variance Inflation Factors (VIFs).Fortunately, they were generally low (with values household characteristics that we expect to influence both gas consumption and the HUS amount are significant determinants of gas consumption.Moreover, the HUS does have an effect of consumption above and beyond that of dwelling and household characteristics alone, but this effect is modest at best: The gas demand elasticity with respect to the gas HUS is 0.079.For comparison, the income elasticity is 0.33.That the elasticity of demand with respect to the gas HUS is low means between 1 and at most 4) for all variables, with the only exception of the heating degree days, whose VIF is 19.95, due to its high correlation with the oblast fixed effects.that we should expect only modest increases in consumption when a household receives the HUS and modest cuts in consumption if the HUS is removed or reduced.

The Effect of the HUS
The HUS played a substantial welfare improving role by significantly reducing the energy expenditure burden, especially for the lower-income households.Using the demand function in col.
(1) of Table 7, where we regard the HUS as a reduction in the price per cubic meter of gas, we compute that if the HUS were removed from its recipients, they would experience an average consumer surplus (CS) loss of 1,772 UAH (2014 UAH) per year per household. 28Expressed as a share of net income, the household consumer surplus loss is on average 6.46% of net income. 29Household welfare was thus improved substantially by the HUS.
Table 8 summarizes the loss of consumer surplus from removing the HUS by income and gas consumption quartile, which can be interpreted as the welfare gain brought by the HUS itself.The table shows that the absolute CS gain is similar in magnitude across income and consumption quartiles, and quite sizeable for the relatively well-to-do households in income quartiles 3 and 4. 30 While some leakage to better-off groups was important for ensuring the political acceptability of the subsidy reform, this information suggests that there is room for improvement in targeting the assistance to the neediest households.The top 50% income households experience a larger CS gain from the HUS than poor households in the 1 st and 2 nd gas consumption quartile, and as large a gain as poor households in the 3 rd and 4 th consumption quartile.Panel B of the table shows that those in the first income quartile gained the most (and would stand to lose the most if the HUS was removed) in relative terms, with CS gains representing up to 14% of income.By contrast, the CS gain as a share of income is less than 3% for those in the top income quartile.28.See footnote 16 for the exact expression for the consumer surplus change associated with the HUS.29.These figures refer to HUS recipients whose HUS assistance would be eliminated.The overall consumer surplus loss-based on averaging these households with non-recipients who would therefore stand to lose zero-is 1,196.04UAH (2014 UAH) or 4.36% of net income.
30.The figures in the table show that for each income group the CS gains brought by the HUS grow slowly with consumption volume.Holding consumption volume the same, the CS gains change little from one income group to the next.
To compute the welfare loss (compared to the current HUS) of halving the assistance, we start with predicting consumption at the reduced HUS level.Since the elasticity of consumption with respect to the HUS is 0.08, halving the HUS would bring a 4% reduction in consumption.We translate that into the implicit price per cubic meter faced by each household, and then compute the consumer surplus change associated with going from the original effective price-the implicit price with the actual HUS-to this new effective price.The average HUS recipient would experience a CS loss of 854 UAH (2014 UAH) relative to the current HUS.Since 64% of the households in the sample receive the gas HUS, the CS loss for the average household in the sample would 547 UAH.
Table 9 shows that the CS loss would be highest among the low-volume consumers.This is because low-volume consumers would end up facing higher effective prices than higher-volume consumer in the same income group.Within the same consumption group, wealthier consumers would experience a larger loss of welfare because they would face higher implicit prices per cubic meter of gas than the low-volume consumers in their income group.Notes for interpreting: bigger losses among the low consumption quartiles, because these guys get lower HUS to start with (compared to others in the same income group), because they do not consume much, and so their effective price after the HUS revision is higher.

Alternate Energy Assistance Designs
What would happen if the HUS were replaced by an assistance system that is more targeted towards the poorest families and is decoupled from consumption?Suppose for example households below the poverty line received a cash transfer equal to the difference between the poverty line income and their income. 31Who would gain/lose from such a social assistance design, and by how much?
Clearly, this design would change the composition of the recipients.As shown in Table 10, we compute that one-third of the households did not receive the original HUS and would not receive 31.The poverty line is 1,795.6UAH monthly per adult-equivalent in 2016, 2,128.597 in 2017, and 2,325.0UAH in 2018.One adult-equivalent is 1+0.7×(householdsize -1).The statutory subsistence minimum (SM) is the official poverty line used in Ukraine.Households with per capita incomes below the statutory SM are considered poor and are eligible for a variety of social assistance programs.The statutory SM is a policy tool set by the Council of Ministers.See http://www.ukrstat.gov.ua/,tabs "Statistical Information," "Income and living conditions," "Differentiation of household living standards."this hypothetical variant-at zero loss of welfare.About 3.50% of the families do not receive the actual HUS (because of very low consumption), but would qualify for this new version, for a mean CS gain of 1907.60 UAH-or 10% of net income.Almost 54% of the households would lose the HUS, for an average CS loss of 1882 UAH (6% of net income).Finally, about 10% of the sample would continue to receive the HUS, although the new amount may well differ from the original one.Indeed, this latter group includes just as many losers as it does winners, for an average CS change of -11 UAH (all figures in 2014 UAH).The proposed subsidy design thus brings an overall loss of CS in the amount of 944 UAH per household per year-or almost 3% of net income.When attention is restricted to previous HUS holders, the CS loss is 1,579 UAH per household per year (2014 UAH).Further analysis reveals that households in the first income quartile and the first gas consumption quartile are distributed reasonably evenly across the four groups.Families in the fourth income quartile and the fourth consumption quartile are split 40%-60% between never-recipients and no-longer-eligibles.Among the "new recipients" the CS gains are larger among the heavier users within a given income quartile.Among "still-recipients" the effect is the opposite.
Suppose now that households below 150% of the poverty line received a HUS equal to the difference between their income and 150% of the poverty line.This more generous design would reduce the number of households that lose their HUS subsidies and would increase the number of winners.Technically, the overall effect would be a CS gain (average per household 33.92 UAH per year); in practice, this amount is so modest that it is equivalent to CS-neutrality (Table 11).
Almost 24% of the households in the sample did not receive the actual HUS, nor would they receive this variant.Thirty percent would lose their HUS, for an average CS loss of 1840.58UAH per year.One third would continue to receive some HUS amount, for an average CS gain of 845 UAH.Finally, 12% would be now eligible for the HUS, for an average CS gain of 2469 UAH per household per year.
An even more generous variant of this proposal (200% of the poverty line; Table 12) would attain an overall CS gain of 946 UAH per household per year (3.36% of net income).Under this option, only about 15% of the sample would remain without HUS (with the consequent zero welfare change).About 21% of those that do not currently receive the HUS would start receiving it, for an average CS gain of 2836.63 UAH (9.57% of net income).Some 14% would lose their entitlement to the HUS, for a CS loss of 1774 UAH (3.5% of net income), and 50% of the current recipients would enjoy HUS subsidies under this proposal, for a CS gain of 1261 UAH per household per year.

Fiscal Implications
We find that the HUS energy assistance played a significant role in reducing the burden of the energy bills, and that its recipients experienced consumer surplus gains equal on average to 6-7% of net household income.While the HUS appears to have been greatly beneficial to its recipients, it does drain the state coffers.It accounts for 1%-2.5% of GDP (2016-2020).In part, the high cost is due to high level of HUS coverage and considerable share of the benefit going to the relatively rich groups.The inclusive nature of the HUS follows from the program's intent to ameliorate fuel poverty-and fuel poverty can be experienced even by relatively well-off households when extreme tariff hikes are implemented-and was desirable for political reasons to prevent backlash and policy reversal.Eligibility for assistance was subsequently tightened, which brought HUS costs down from 2.15% in 2017 to under 1% of GDP in 2020.
Table 13 summarizes the HUS budget received by households who use natural gas for space heating in our sample under the current HUS and each of the five hypothetical scenarios considered in this paper.This fiscal impact analysis suggests potential for cost-benefit optimization in   the sense that cutting the HUS subsidies by a given proportion may entail a smaller loss of welfare for consumers with respect the full HUS subsidies than alternate schemes.Linking the gas HUS to income and decoupling it from gas consumption would save government funds only under the least generous energy assistance formula, but with an overall CS loss.More generous variants of this plan would be practically CS-neutral (scenario 3.b) or even bring large gains (scenario 3.c) with respect to the current HUS scheme but would be extremely expensive.These various alternatives demonstrate the tradeoff between generosity, targeting (of the fuel poor v. the poor), and fiscal impact.When attention is restricted to the welfare gains and net cost (to the government) of that gain, a policy choice that carries more welfare gain relative to cost would be deemed as superior.According to this logic, the current HUS scores well relative to the alternatives since it achieves a high positive welfare impact relative to its cost.This is particularly relevant for households from 1 st and 2 nd income quartiles, which is a typical policy target group out of fuel poverty as well as overall poverty considerations.This suggests that the current design has favorable cost-benefit properties, and that improvements could be attained by tightening the meanstest to reduce leakages to the richer groups without fundamentally altering the current design in favor of direct anti-poverty cash transfers.If budget cuts are a must, proportional cuts to the program can be devised that attain the least welfare losses for the savings in government fundings.For example, we find that cutting the HUS payments-and hence the government disbursements-in half would imply a smaller loss of welfare, and spend only 50% more, than a basic program that brings the poorest households to the poverty line.
Additional alternative scenarios for energy assistance include combining one of the five hypothetical scenarios of Table 13, with other schemes, like social tariffs.To illustrate, we calculate that if households in the bottom income quartile were charged 80% of the regular tariff, and those in the top income quartile were charged 115% of the regular tariff, the former would experience a modest CS gain (437.152014 UAH), and the latter would experience a modest CS loss (487.25 2014 UAH), at no loss of revenue for the utility.The low price elasticity of demand implies that consumption would not decrease in the high-income groups, or increase in the low-income groups, to the point of compromising this self-sustaining scheme.The social tariff scheme could thus be used to ameliorate the effects of a HUS overhaul, at least among the poorest households.

CONCLUSIONS AND POLICY IMPLICATIONS
The residential energy assistance program in Ukraine-the HUS-has managed to provide considerable relief from energy poverty at times of extreme tariff hikes on the most common source of space heating for the population-natural gas.Its formula combines two targeting elements not typically applied together to assess the energy burden, namely income means-testing and the expected volume of energy consumption.The latter is based on household size, dwelling type, and size, and is regionally and seasonally adjusted, but-unlike others, such as the one in Argentina documented in Bastos et al. (2015)-not on historical or current actual consumption.Since the calculation of the HUS neither penalizes nor rewards heavier or lighter users, we do not expect it to engender incentives to either over-or under-consume.
We have examined the effects of the HUS on fuel poverty and on consumer welfare, finding that it has significantly ameliorated the fuel poverty situation of its recipients, and brought considerable gains in consumer surplus for its recipients.
The fact that gas demand is relatively inelastic, and that the HUS has a small effect on gas volume consumed would result in a relatively modest loss of welfare if the HUS were reduced pro-portionally to all recipients and suggests that "social tariffs" that charge higher gas prices to wealthier households and use the extra revenue to help cover the bills of poorer households could be viable.
Additionally, consideration could be given to converting the HUS to a one-time payment to be applied to energy-efficiency improvements in the dwelling, ensuring sustained, permanent savings in the energy bills of the household.Ukraine's building stock is in poor condition and energy-inefficient (Emerson and Shimkin, 2015; Rozwalka and Tordengren, 2016).Energy efficiency, however, could be substantially improved in homes and multi-family buildings, for potential savings of up to 50% of the current usage of natural gas (IFC, 2017; Emerson and Shimkin, 2015). 32rior to Russia's invasion of Ukraine, a number of programs helped finance energy efficiency upgrades in buildings.Under the Warm Loans program, individual homeowners obtain loans to pay for certain types of energy efficiency upgrades.The government reimburses the homeowners up to 35% of the principal of the loan (20% for a boiler, but 35% if the homeowner has received the HUS), up to a certain cap.The loan is provided by selected banks, with interest rates that have ranged historically between 18% and 27%. 33The average cost of a project for individual homeowners is about 18,000 UAH. 34ased on government reports (2016, 2017) and Alberini et al. (2019), it is reasonable to assume that energy efficiency improvements reduce gas consumption by some 20% on average.For a home improvement project costing 18,000 UAH, a household that seeks to borrow half of that amount would be receiving 3150 UAH from the government.Excluding interest payments, this would bring the cost of the project to 14,850 UAH, which would be easily "paid back" by the savings on the gas bill over the lifetime of the equipment and materials (20 years) at no loss of welfare for the household.The household would consume less gas but be equally or more comfortable in a better insulated, and warmer, home.The low price elasticity of gas demand should ensure that any "rebound effect" would be negligible (Sorrell et al., 2009).
The 3,150 UAH payment from the government would be a one-time payment that is just about equal to or less than the average annual HUS payment during 2018 (4,800 for the full HUS on all utilities, and 2,949 UAH for the gas HUS).This one-time payment would help secure gas consumption reductions over many years.The approximate cost to the government per year would be, if it continued at the same rate as in the past, some 400 million UAH for a saving of 800 ×0.20×14,934,919 households×0.08(the share of households participating in a year)=19,117 million cubic meters of gas per year.The program budget has been, and would continue to be, a fraction of that for the HUS, implying very large savings for the government.
With significant loss of building stock to ongoing Russian shelling and missile attacks, reconstruction may offer opportunities for fuel switching, which would help make Ukraine less dependent on gas imports from Russia.Consideration might be given, for example, to heat electrification.At least 50% of the electricity generated in Ukraine is nuclear, and indeed Ukraine boasts the largest nuclear power plant in Europe (Zaporizhzhia).Prior to the war, considerable progress had been made towards increasing Ukraine's reliance on renewable sources for heat and electricity generation (IEA, 2021, page 35).Ukraine does have some hydropower (accounting for 5% of total electricity generation in 2019, and planned for future expansion), although the state of this infrastructure is unknown at this time of conflict.
Heat pumps have in recent years been touted as an attractive type of heating system-as long as the electricity grid is sufficiently low-carbon.Heat pumps require gas backup when the weather is cold, but they would still help reduce reliance on natural gas imports.Electric storage heaters charge during the night and release heat during the day and may thus be suited for the baseload electricity generation in Ukraine, which is mostly nuclear. 35n sum, creative redesigns of the existing energy assistance program are possible that continue to protect consumers, or at least the most vulnerable of them, at moderate cost to the government.Importantly, many of them may also allow Ukraine to reduce reliance on natural gas imports as well as greenhouse gas emissions during reconstruction after the conflict.

Figure 1 :
Figure 1: Total annual household income (inclusive of government assistance and HUS), 2014 UAH.

Figure 3 :
Figure 3: Percent of the HBS sample receiving the HUS or benefits (also termed privileges, namely discounted tariffs due to professional status or protected category).

Figure 4 :
Figure 4: Percentage of households that receive the HUS in each quintile of the distribution of income.

Figure 5 :
Figure 5: Percentage of the total HUS paid each year that was received in each quantile of the distribution of income for that year.

Table 1 : Annual consumption of natural gas (in m 3 ) and heating degree days (base: 18° C) in 2017 and 2018. Consumption of natural gas (m 3 ): households that use natural gas
Table A.1 in the Appendix shows that the HBS samples from which these statistics are constructed are very similar across the 2017 and 2018 waves.21

Table 4 : Energy (gas and electricity) expenditure as a share of net income by income quartile-gas consumption quartile. Households that use natural gas for space heating, 2017-2018.
. Households that do not receive any HUS.
AB. Households that receive the HUS (for gas or other utilities).

Table 6 : Fuel poverty, households that use gas for space heating, 2017- 2018.
. Percentage of households that are or would be fuel poor if they had to pay the full electricity and gas bill.A household is considered fuel poor if the share of full electricity and gas bills out of net income is 10% or greater.Percentage of households in actual fuel poverty.A household is considered fuel poor if its actual expenditure on electricity and gas (net of the HUS) is 10% or more of net income. A

Mean welfare gain (+) or loss (-) per household per year (2014 UAH)
a: median welfare change is zero.