Energy Strategy Reviews (Jul 2024)
The impact of a short-term fuel price cap on market prices after its removal: Evidence from Hungary
Abstract
In 2022, energy prices in the European Union reached record highs, accompanied by a significant increase in fuel prices. In response, the Hungarian government imposed a price cap on retail fuel prices from November 15, 2021 to December 6, 2022. This study empirically examines the effect of the elimination of the price cap on fuel prices. The aim is to determine whether the removal of the price cap resulted in subsequent price increases. The study employed a synthetic control method, comparing actual observed prices with prices estimated by the synthetic control after the intervention. In the ten-month period following the removal of the price cap (December 2022 to September 2023), the actual price was on average 12 % higher than the price projected by the synthetic control. The largest difference was observed in January 2023, with a price premium of 16 %. There was a moderation in the difference between February and September, but even during these months, the gap remained slightly higher than 11 %. This difference may be attributed to distortions of competition due to the price cap.
