By Meghna Kane
Whenever one thinks of Norway, one immediately conjures up images of the Northern Lights, the Fjords, the deep lakes and the picturesque towns located on cliffs. The country has the fourth highest per capita income in the world and ranks number 1 on the HDI since 2009. Norway is also, the undisputed capital of Electric Vehicles (EVs) of the world. As you’re reading this, a “Green” Revolution is underway in the Scandinavian country. The purchase and use of EVs in Norway has increased tremendously over the last few years. Currently, Norway has the largest fleet of EVs (per capita) in the world. So how did Norway achieve this feat? What has made Electric Vehicles so popular in the country? Is it because the Norwegians are more conscious about the environment than others? Does acting green give them a warm glow significant enough to trade in their BMWs and Jaguars for a Tesla? While that is still up for debate, what we can say definitively is that one of the key factors driving this change is Money.
Norwegians have been incentivized to purchase electric cars by the government over the previous decade at a cost of tens of thousands of kroner per car. Some of these incentives, which date back to 1990 when climate change had just begun breaking through the public conscience, are given below.
- No import/ purchase taxes
- Exemption from 25% VAT on purchase
- Low ( almost zero from 2018) road taxes
- No toll taxes and free ferry rides
- Free municipal parking
- Access to bus lanes (helping circumvent traffic)
- 50% reduced company car tax
- Exemption from 25% VAT on leasing
Besides promoting a cleaner and less polluting means of transport, state subsidies have helped bring the price of the top-selling electric car Nissan Leaf down to 240,690kr, comparable to that of similarly powered petrol driven cars. Besides the affordability factor, free municipal parking and almost zero road tolls helps save upto 10,000 kroners over the course of a year, giving these electric cars an edge over the conventional petrol/diesel driven cars. There are more than 10,000 charging stations spread around the country, with clustering in key areas such as markets places in the cities. Several of these charging stations are placed along highways too, enabling long distance travels, even if they are time-consuming. And the best part of it all? Charging is free.
Such generous and wide-ranging benefits have helped boost the sales of electric vehicles in the country, with pure electric cars and hybrids accounting for 52% of all new car sales in 2017 as against the 40% in 2016. Norway has exceeded its goal of having 100,000 EVs on the road by 2020, with about 121,000 electric cars plying on the roads in 2017. Norway’s parliament has now set a non-binding goal to have the sale of only zero emissions cars by 2025. Such an ambitious goal can be achieved only if the rate of the shift to emissions free vehicles is maintained or possibly, accelerated. This requires the Norwegian government to continue with its incentives schemes for the next 7 years, which acts as a huge drain of the nation’s wealth in the present. Norway has acquired vast wealth over the years from decades of oil and gas production. It has the world’s largest Sovereign Wealth Fund, originating from the surplus revenues of the country’s petroleum sector and comprises of over US$1 trillion in assets, including 1.3% of global stocks and shares. This fund has basically financed the green shift, with subsidies and tax rebates straining state finances. Norwegians face some of the world’s heaviest taxes, and removing sales tariffs from electric cars, along with other tax incentives, has led to a loss in tax revenues of the accord of almost 3 billion Norwegian Kroner a year. If the incentives were to continue, these losses would pile up.
What makes the fleet of electric cars in Norway the cleanest in the world is the fact that 98% of the electricity generated in the country originates from hydropower. Thus, unlike other countries, where pollution eliminated by cutting back on exhaust fumes is often offset by pollution emanating from coal based power plants during electricity generation for the charging stations, there is an absolute decline in the pollution levels in Norway. However, it should be taken into consideration that this green shift is, in fact, funded by oil money. Norway is essentially buying good conscience. As a share of GDP, the export of oil and natural gas stands at approximately, 17%. Most of Norway’s carbon emissions are from its oil and gas industry and from road traffic, standing at 30% and 23% of their GDP. While the country purchases emission offsets from other nations to counter the problem of emissions generated by the petroleum industry, it has resorted to adopting the technologically advanced EVs to reduce the carbon footprint and greenhouse gas emissions.
One of the biggest questions today is whether Norway will be able to sustain this green shift. The answer lies in the sustainability quotient of their incentives programme, which was adopted to promote the shift to more environment friendly technology and use of alternative fuels. While the programme has been highly successful to this ends, with the country seeing a massive increase in EV sales, it has attracted its fair share of criticism too. Some of the observed adverse effects of these incentives are as follows:
- EXEMPTION FROM TOLLS: Revenue from tolls finances the road infrastructure and is an important source of revenue. Exempting EVs from these tolls reduces toll income, leading to insufficient and diminished quality of road infrastructure.
- USE OF TRANSIT LANES AND BURDEN ON FERRY OPERATORS: Mr. Holtsmark, an analyst from STATISTICS NORWAY pointed out that “by encouraging people who can afford it to buy a second car instead of taking buses and trains, the electric car scheme may ironically be aggravating environmental problems and causing traffic jams.” This is reflective of the sentiments of other critics who believe that allowing the EVs to use transit lanes has increased congestion, thereby imposing costs on public means of transportation. Ferry operators have also suffered losses in the process, with their profits being wiped off the slate.
- EXEMPTION FROM PARKING CHARGES: This preference given to EVs has led to a decline in the parking spaces for convention car users. Parking fees are meant to reflect the alternative cost of parking spaces and are a good source of revenue as well. Exempting EVs from paying this fee has led to economic losses to the municipalities.
The timing and method of withdrawal of the incentive scheme has been a hot topic of debate among politicians. It has been pointed out that some of the earliest users and buyers of electric vehicles belong to the richer section of the society. In view of this belief, the Norwegian government planned to introduce a “TESLA” tax (named so because it was imposed on EVs weighing more than two metric tonnes, which were mainly all Tesla Model Xs) in October 2017. The motivation behind the tax was to make owners of heavy electric vehicles contribute more to the cost of upkeep, keeping in mind the damage caused to roads by the heavy vehicles. However, this plan was scrapped later on due to heavy opposition from traditional centre-right allies of the current government on the grounds that it violated the earlier government’s commitment to keep electric car incentives in place until 2020. The government is still looking for ways to slowly pull back these incentives without disturbing the green shift. Whether they’ll be able to achieve this and continue to maintain their hold onto the title of the “capital” of electric cars is something only time will tell.
All this discussion now begs the question; can other countries follow the Norwegian Model? Norway is a rich and small country, with a population of about 6 million. Norway’s success has been possible because of its reliance on hydroelectricity as the main source of energy. Other countries cannot boast of the same and have to rely on coal based power plants for their electricity, making it difficult to cut back on their emissions despite the use of EVs. Besides, it is not possible to use the Norwegian incentive schemes in other countries. Consider US for example. To have the same percentage of EVs as Norway, America would require 6.25 million electric cars on the road. If this were to be induced by tax rebates and subsidies of the same nature as the Norwegian ones, there would be colossal losses. While it is difficult to replicate the Norwegian success story, a few European countries have also experienced a rise in electric car sales in recent years. They must, however, tread lightly while setting up incentive based schemes, keeping in mind the costs vis-à-vis the benefits of implementing such policies. Other policies targeting car makers, making production of electric vehicles more attractive could prove to be effective in the long run. Imposing new emission standards on petrol driven vehicles, taxing their production and increasing import cesses could act as a new source of revenue for the government coffers, allowing them to spend more on consumer incentive schemes. Cooperation among countries on taxation will be crucial to achieve the desired results.