In the first half of this year, Norway’s electric vehicle sales garnered 55 percent of the new car market—up from 6 percent in 2013—because Norway provides numerous incentives that distort that market. In contrast, the EV sales share of the market in the rest of the world is in the low single digits, despite large subsidies. Consumers tend to shy away from electric vehicles because they are expensive and they have range limitations, slow charging times, and limited resale value. Further, in cold temperatures, such as in Norway, electric vehicle (EV) range can be reduced by up to 40 percent. In Norway’s winters, the range is about half what it is in the summer. The incentives that Norway provides, however, seems to outweigh those negatives. They are:
- EVs are exempt from the value added tax (VAT) and other taxes on car purchases and sales.
- Parking in public parking spaces is free.
- EVs can use most toll roads and several ferry connections free of charge.
- EVs are allowed to use bus and collective traffic lanes.
- The company car tax is 50 percent lower on EVs.
- The annual motor vehicle tax/road tax is also lower.
- Battery charging is free at publicly funded charging stations.
In comparison, internal combustion engines are subject to a 25 percent VAT, a carbon tax, a nitrogen oxides tax, a weight tax, and gasoline and diesel taxes. As a result of these taxes, internal combustion vehicles cost more to purchase in Norway and are up to 75 percent more expensive to operate.
Norway’s government has plans to wean consumers from fossil fuels that includes a goal to end the sale of fossil-fuel burning cars by 2025. Due to the incentives on EVs, over the last six years, sales of diesel cars dropped by 95 percent and the share of diesel vehicles in use dropped to 32 percent—almost half what it was in 2013. The share of gasoline-burning cars dropped to 17 percent, down from 29 percent.
Norway’s government decided to keep the incentives for zero-emission cars until the end of 2021. The VAT exemption for zero-emission vehicles is approved until the end of 2020. After 2021, the incentives will be revised and adjusted parallel with the market development.
The Incentives Are Not Free
The EV incentives cost the Norwegian government and thus the country’s taxpayers dearly. In 2014, an independent study found that the annual EV incentives cost to the Norwegian treasury was $8100 per EV (excluding the value of free charging and bus lane access). At the end of 2018, Norway had 200,000 registered EVs, resulting in a total annual EV subsidy cost to the Norwegian government of $1.62 billion dollars per year. The annual subsidy increased to around $1.95 billion dollars as of June 30, 2019 due to the rapid growth in the EV fleet.
If Norway were to convert all of its 2.7 million private cars to EVs under these incentives, the total annual cost to the Norwegian treasury would be around $22 billion dollars per year (198 billion NOK). To put these numbers in prospective, the breakdown of Norway’s 2018 fiscal budget can be found by following this link. Note the EV incentives would become the second largest budget expenditure, after retirement pensions in Norway, if all its vehicles were EVs.
Despite this level of EV sales, carbon dioxide road traffic emissions increased by 2.8 percent in 2018, but they were less than in 2014. The muted impact of EVs on Norwegian gasoline and diesel consumption is due to the fact that 64 percent of Norwegian households that own an EV also own an internal combustion vehicle. Two vehicle households in Norway use internal combustion cars for 60 percent of their driving needs and EVs for 40 percent.
The second car effect is apparent in the passenger car data: In 2014, Norway had 2.55 million passenger cars (including 50,000 EVs) compared to 2.76 million passenger cars (Including 300,000 EVs) in 2018. Thus, the internal combustion fleet has remained fairly constant with EVs supplementing internal combustion vehicles rather than replacing them.
Norway’s EV support policy is essentially a second car discount and cost subsidy mechanism for the rich because the likelihood of purchasing an EV is 15 times higher for the richest 25 percent of Norwegian households as compared to the bottom 25 percent. Since the purchase price of an EV is cheaper than an internal combustion car in Norway that difference is not explained by the initial cost difference. Because 84 percent of the richest households own at least one additional internal combustion car versus only 21 percent of the poorest households indicates that without access to a second internal combustion car, owning an EV—despite all the incentives—is less appealing to the average person. This is most likely due to the EV’s limitations.
EV Policy Is an Expensive Climate Policy
Favoring EVs as a policy to reduce carbon dioxide emissions is very expensive. The cost for reducing carbon dioxide emissions through EV adoption in Norway is estimated at $13,500 per ton of carbon dioxide. It would cost almost $122 trillion to bring the 9 million tons of road traffic emissions in Norway to zero at that cost. Several studies have shown, however, that EVs have a relatively limited (17 to 30 percent) carbon dioxide emissions reduction impact–on a lifecycle basis—under the current European electricity mix.
Conclusion
It appears that global electric vehicle demand is waning across most of the world, except where EV markets are distorted as in Norway. The incentives that the Norwegian government provides EVs have them garnering over 50 percent of the new vehicle market. But that may change as the government revises those incentives in 2020/2021, as has occurred in other EV markets. But, despite the huge market for EVs in Norway, the environmental benefits are small and the cost is very expensive.
