Even before the 24th of February 2022, the disruptive effects of the COVID-19 pandemic put European countries under strain. After the outbreak of the unprovoked Russian invasion of Ukraine, followed by the European Union’s sanctions packages against the Russian Federation, inflation started to surge throughout Europe. Russian oil and gas have become a stigmatized necessity, an indirect platform of terror funding. Now, the European economies are struggling to maintain their balance, while administrations cling to their last drops of legitimacy in front of a deeply burdened civil society. Hungary is no stranger to this situation.
Hungary’s position in the Visegrad Group has been, since the outbreak of the war in Ukraine, a controversial one. Czech Republic’s Minister for European Affairs defined the current situation of the group as “taking a pause”, while the Polish Deputy Minister Wojciech Skurkiewicz told the Radio Information Agency that the V4’s present state is far from optimist, all due to Hungary’s stance. Many consider that the four countries’ relations are currently going through their coldest phase since the 1990s.
The administration in Budapest seems lost in promises and nationalist agendas. Viktor Orban’s policies of maintaining the procurement of cheap Russian gas have been maintained by his actions, even before the outbreak of the war. Just weeks before the Russian invasion, the president was in Moscow, to agree on a new gas supply contract with Vladimir Putin. Viktor Orban has criticized the EU’s sanctions against Russia, emphasizing their lack of effectiveness in weakening Russian aggression while creating a surge in electricity and food prices at home.
Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto declared that it seems unfair for the Hungarian populace to “pay the price of war” by being deprived of Russian oil and gas and the jobs and comfort that come alongside them.
In the last few years, Hungary’s dependence on Russian fossil fuels has increased drastically. With little domestic production, Hungary’s import dependency stood at 87% in 2020. Russia accounted for “64% of crude oil imports and 95% of gas imports” (IEA 2022). The Budapest administration does not plan to decrease oil consumption, but it seems it plans to curb the overall consumption growth. Due to a lack of domestic resources, the country’s imports of fossil fuels will likely keep increasing.
The Hungarian forint has been decreasing constantly in value since the outbreak of the war, reaching historical lows by falling up to nineteen percent compared to the euro, in autumn 2022. It seems that not only the war is burdening the Hungarian economy, but the pandemic’s aftermath is still lingering in its background with a growing budget deficit, doubled by the dispute with the European Commission about the recovery funds.
The inflation level that Hungary has to battle through is one of the highest throughout Europe, reaching over 23%, with food prices exceeding 55% and household energy inflation being well over 60% in autumn 2022 (Moldicz 2022, 2).
The spike in fuel and energy prices caused by the war in Ukraine has put the Hungarian budget under strain. Household retail prices for natural gas and electricity have long been capped in Hungary, to keep costs for households affordable and avoid exposing them to price volatility (IEA 2022). This policy should come to aid vulnerable households and small businesses. However, as of August 2022, the policy no longer covers households or businesses that exceed the average level of energy consumption. In the case of passing the imposed consumption limit, the retail prices are increased towards market prices. However, this price capping left significant holes in the Hungarian budget, holes that are subject to be filled through different methods, such as the modification of the KATA flat-tax law, through which small businesses used to pay monthly a fixed amount of money that covered all their obligations to the state. As of July 2022, the law’s revision may make it harder especially for many new and young entrepreneurs to jumpstart and run their businesses (Szokolai 2022). This measure is part of the many efforts the Hungarian state adopted to bring down the consequences of the economic crisis. The other new special taxes that have been introduced are meant to add 800 billion forints in additional revenue to the state budget in 2022 and 1 trillion forints in 2023, while also having government spending cut for these two years.
In July 2022, while also declaring the state of danger due to the developing energy crisis, the Hungarian government also decided upon other points of action regarding the issue, such as:
· the increase of domestic gas production from 1.5 to 2 billion cubic meters
· the Minister of Foreign Affair’s duty of continuing to negotiate with other countries for natural gas supply
· the implementation of the ban on energy sources and firewood export
· the increase of domestic coal production
· the restarting of the Mátra coal power plant
· the life extension of the Paks nuclear plant, while also conducting reviews of the cost and feasibility plans
· “the subsidizing of energy consumption of energy-intensive companies by the government, which will pay half of the increase in energy prices (up to 500.000 euros)” (IEA 2022), although the help is not granted automatically to all the enterprises.
What Hungary should first and foremost do is try to pursue a more domestic approach to the fossil fuel demand. However, being heavily dependent on the Southern Druzhba pipeline and, therefore, heavily dependent on the import of Russian fossil fuels, the European Union’s embargo on Russian imports has deepened the government’s euro-skeptical approach. The Orban administration has requested the country’s exemption from the embargo. The EU granted Hungary limited access to the Druzhba pipeline, but the country has to urgently find new ways of diversifying its oil imports, alongside its regional partners.
The European Commission is trying to boost the countries’ energy development towards a greener approach, such as solar and wind power, while also encouraging the development of biomethane and hydrogen innovations. Many countries in the EU, including the Visegrad Group, also see the potential of nuclear power replacing the use of coal and gas.
As mentioned earlier, Hungary’s current objectives mention both nuclear and fossil fuel-powered energy. Going back to coal and restarting the Mátra power plant was the least environmentally-conscious action. However, it seems that the power plant is facing inoperability due to malfunctions, although Viktor Orban keeps pushing for its operation at even higher outputs. Currently, the Mátra power plant is put at a halt for reparations since the end of September.
Hungary’s key to energy security and independence is the implementation of the green transition, according to a new in-depth policy review by the International Energy Agency. This is also what the European Union is pushing for in all the member states.
Solar photovoltaic power is also a viable alternative now for Hungary, although, in the colder season, the grid cannot fully satisfy the demand. Overall, the country’s performance regarding the use of renewable energy has been increasing in the past few years, although it has not reached the government’s 2030 ambition of 21% in gross final energy consumption yet.
The life extension of the four nuclear reactors at the Paks Nuclear Power Plant could be the key to the slow phase-out of the fossil fuel industry. The nuclear energy produced would guarantee half of the country’s energy supply. “Between 2012 and 2017, all four units of the Paks NPP were granted 20-year lifetime extension licenses, on top of the 30-year original design lifetime, bringing their scheduled closure dates to 2032-37” (ibid). Two more reactors have been planned to be built at Paks II through the government’s agreement with the Russian state-owned company Rosatom. The 10-billion-euro financing deal was agreed to cover 80 percent of the anticipated project cost, with Hungary to repay the loan over 21 years of operation (Reuters 2022). Due to the war and sanctions, many ask themselves whether Russia will afford to fund the loan in a decent time period, provided that the project has already been postponed for 5 years. In 2021, half of the electricity in Hungary was from nuclear sources, followed by strong contributions from “natural gas (28%), coal (11%), and solar (5%)” (IEA, 2022). Among the International Energy Agency’s countries, Hungary has the third-highest share of nuclear, after France and Slovakia.
All in all, Hungary’s renewable energy potential is not to be underestimated. However, there is still a lot to be done regarding the country’s energetic independence, which could be obtained only through an increase in the usage of domestic renewables.
As inflation continues to rise and the war in Ukraine keeps on lingering, the Hungarian administration seems to lose its connection with civil society. Although price capping for gas and food is here to stay, the Hungarian population has a hard time paying its bills, some even giving up their apartment life and moving to the countryside in favor of living in yurts, for a more cost-effective approach.
The Budapest administration needs to step up its game. Multiple recommendations could help the country overcome its situation.
First of all, Hungary has potential in geothermal and wind power and it should invest in such renewable energy-producing facilities. Having mostly flat topography, this recommendation should come as a no-brainer. If all renewable energy power plants were to be used to their full potential, the country could close its last coal-powered plant in less than 5 years.
Second of all, closely related to the previous point, it is of utter importance how the country will manage the green transition while providing adequate support for the communities involved in the Mátra coal plant. Many countries fail miserably in front of these communities, leaving them in bleak, desperate situations. With the opening of Paks II NPP, the construction of wind farms, the appearance of geothermal power plants, and so on, there will be a demand for workers in these fields of expertise. Those affected by the transition should benefit from the government’s support by being able to re-qualify themselves and having priority in occupying vacant posts in the field of renewables.
Third of all, the administration lacks skilled experts in the areas of energy efficiency policy design, funding, implementation, monitoring, and evaluation. The government should fund and support the implementation of an energy efficiency agency responsible for facilitating access to renewable and efficient energy programs. This type of agency could work with local authorities to support them through the technically complex implementation of projects (IEA 2022).
The list of recommendations could go on. In the case of Hungary, the dependency on Russian oil and gas proved the administration wrong in their ideological battle against the EU. The at-the-moment smoldering protests should represent a last-minute wake-up call for the Orban administration. Russia is no longer the answer when cities throughout the country close facilities or limit public transport because of the sevenfold increase in gas prices. It is about time European countries realized their green energy potential and refused to burn terrorist-sustaining oil and gas in an era of green and sustainable innovation.
Bibliography
IEA (2022), Hungary 2022, IEA, Paris https://www.iea.org/reports/hungary-2022 , License: CC BY 4.0
Hungary economy briefing: The sources of inflation in Hungary, Weekly Briefing, Vol. 55. No. 2 (HU) October 2022
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