By Rebekah Austring and Emma Monrós Rosell
OSLO – Walking through Norway’s capital city feels like being in a Tesla advertisement. With electric vehicles on every street, it’s no surprise that Oslo has the world’s highest number of electric cars per capita. This was achieved largely due to ambitious tax breaks and consumer incentives over the past 30 years.
Nearly 30% of the European Union’s total CO2 emissions come from transportation, 43% of that can be attributed to passenger cars. In 2022, the Norwegian government announced that by 2025, all new cars sold should be zero-emission. But despite their popularity, the Norwegian government has cut down on the initiatives that built this electric city.
Since the early nineties, Norway has had a multitude of incentives meant to encourage citizens to ditch petrol cars and buy electric. And since the early nineties, they have worked. People who bought electric vehicles were exempt from paying a purchase tax and could drive on toll roads for free.
The State Secretary from Norway’s Ministry of Transportation, Cecilie Knibe Kroglund, said the incentives came at a time when Norway was economically capable of introducing incentives, and citizens were willing to use electric vehicles.
“I think in Norway, for private people with normal cars and normal jobs, this was a good solution. Both the economic incentives and also practical circumstances matched,” she said.
In 2009, 0.1 percent of Norway’s car sales were electric vehicles, but from 2011, the presence of electric and hybrid private cars became more relevant, and it has not stopped since then. Specifically, Statistics Norway’s data shows that in 2017, the number of electric and hybrid cars sold surpassed those with fossil fuel, and in 2019, the amount of only electric vehicles sold was bigger than fossil fuel cars.
According to the Norwegian Vehicle Association, 79.3 percent of all new cars sold in Norway in 2022 were 100 percent battery-electric powered vehicles. In the European Union (EU), it was 13%, and in the United States, it was 7%.
There is no doubt that the incentives created by the Norwegian government were a success, but they also came at the cost of other aspects and had unintended distributional effects in society. According to Bjørne Grimsrud, the managing director of the Department of Finance and Administration at TØI (Transportøkonomisk Institutt), the incentives led to higher income households purchasing more than two electric vehicles.
That meant that a certain part of society was widely benefiting from policies that were planned to achieve equality when electrifying mobility. In addition, the environmental impact that two electric vehicles have is the same as a single petrol car.
When fewer subsidies are in place, electric vehicles are mainly adopted by higher income households. Battery electric vehicle owners are more likely to be men, have higher education and income, own multiple cars, have full-time jobs, and have children under 18 years old living at home, according to the 2021 study, Who goes electric? The anatomy of electric car ownership in Norway.
Clarence Karlea, an Oslo resident, said he did not buy an electric car because even with the incentives, they were too expensive when he moved to Oslo four years ago. He also said he supports Oslo becoming car-free.
“It would be great, it’s not very bike-friendly at the moment. I’m cycling to work almost every day, and it’s a bit dangerous,” he said.
Subsides similar to Norway’s can make electric vehicles accessible for more citizens, especially when demand increases. Simon Dyhr, a policy advisor at the Norwegian Electric Vehicle Association, said manufacturers are responding to this need.
“Now we do see the introduction of the crossovers and medium-sized cars coming into the market, also being lower in price, and are more family friendly,” he said.
Though the policies proved effective overall, they also presented some questions as to how the government would manage tax collection with 80% of its vehicles being exempt from them. In 2022, EV incentives cost the treasury $4 billion in tax revenue, according to estimates from the Norwegian government.
An Institute of Transport Economics (TØI) report on road tolls in Norway showed that approximately 20 million Norwegian kroner were lost with the elimination of purchase taxes from 2005 to 2020. In addition, EVs were exempt from road tolls until 2021, which threatened toll-financed projects. That is why, in 2023, Norway re-introduced a 25% VAT when buying electric cars with a purchase price of 500,000 Norwegian Kroner and over.
The Norwegian Electric Vehicle Association has proposed that if Norway reaches its goal of selling 100% electric cars by 2026, the government should decrease the VAT from 500,000 to 400,000. If the market adjusts, they suggest that this should be done each year going forward.
What is the next step?
Because of inflation, vehicle sales in Norway are at a record low. However, due to high electric vehicle sales in the past, lost funding because of subsidies, and technical complications due to a colder than average winter, Oslo’s public transportation system has struggled to keep up with demand.
One life-long Oslo resident, Inger Hylene, said that while she got rid of the two electric cars she had, she does not think it will be possible for Oslo to become 100 percent car-free because the city’s public transportation cannot accommodate it.
“Right now, it’s just a perfect storm because in combination with the low supply of buses, we have a little bit of a crisis with the train, both in capacity and also repairing tracks,” said Dyhr.
Despite these struggles, Oslo plans to become the world’s first emissions-free city by 2030, and the city has closed off vehicle access to streets and removed hundreds of parking spots in the city centre.
“The Norwegian government are also de-incentivizing electric vehicles because they are not interested in having more cars built and circulating. Even though EVs are better for the environment, they still have an environmental impact, and the earth does not have unlimited resources to build them. In addition, they can be heavier because of the batteries, which require more road maintenance and also more spreading of microplastics,” Grimsrud explained.
Norway as a whole is also working to have zero-emission transportation in every sector. The reduction of incentives for electric vehicles has been mainly for the sale of private cars. Kroglund said Norway is so close to reaching the 2025 goal that further incentives aren’t needed, and the government plans to focus efforts on other transportation sectors like transport trucks and shipping vessels.
“Because Norway has a particular geography. It’s easier in the south than in the north of course, and the technological development is not so clear for heavy vehicles. – We see that the emissions come from this area, so that’s why it’s important for us to use these incentives now,” she said.
Some companies have already adopted these zero emission practices. Akso, a Norwegian food distributor, uses electric trucks and a self-operating electric ship to transport products across the country.
Now that the Norwegian population has positively transited towards the electrification of private transport, the government is focusing on making heavier vehicles zero emission. According to a 2022 Institute of Transport Economics report, Norway is now behind schedule on zero-emission heavy-duty trucks, as in 2021 they represented 1.4 percent of the share of zero emission vehicles versus the predicted 5.6 percent. However, that number is projected to rise considerably by 2030 due to more strict EU regulations that will oblige truck manufacturers to bring down average CO2 emission rates.
In addition, the electrification of other means of public transport, such as the ferry service in Oslo, is not currently beneficial and poses some inefficiencies regarding route planning and the charging grid capacity.
Despite these inefficiencies, Dyhr said that the belief that Norway cannot support electrifying all transportation sectors is false.
“We had some sceptics in the Norwegian media saying that if we electrify all the cars in Norway, they will use all our power. Then our head of analysis here at the Norwegian Energy Association, made the calculations showing that actually all the private owned EVs only consumed 0.52 of all the electricity in Norway that year.”
Leading the way for other countries
Because Norway incentivized the purchase of electric cars early on, their EV market is decades ahead of other countries. Dyhr said that policymakers in other countries have a lot to learn.
“It’s not really rocket science, even though it’s technically in state budgets. But I think that, for example, the current Danish government, they have been dragging their feet for way too long and have some stop and go policies on incentives. And now they don’t really seem to prioritise it the way it should be,” he said.
Dyhr also mentioned that countries like France and Sweden with different incentive systems than Norway aren’t always successful.
“The new conservative Swedish government, they actually removed the purchase incentives. That’s not working that great. And I think that what the French government did with some kind of like purchase scheme where you could get some cash for your purchase. I don’t think that’s the right recipe.”
“The Norwegian EV success has just been showing also globally that carrot works, sticks doesn’t,” he said.
Supporting the growth of electric vehicle charging infrastructure is equally important to consumer incentives, according to Katalin Springel, the author of It’s Not Easy Being “Green”: Lessons from Norway’s Experience with Incentives for Electric Vehicle Infrastructure,
“Government incentives that focus on expanding the charging infrastructure are likely to be particularly effective in the early stage of the EV market, when EV sales are low and charging infrastructure is underdeveloped,” she writes.
Springel also mentions that if the Norwegian government had allocated equal funding for increasing the number of charging stations, electric vehicle purchases would have increased two times more than they had from mainly introducing consumer incentives.
“A study of the Chinese EV market, Li et al. (2020) concludes that although consumer subsidies explained nearly 55 percent of EV sales between 2015 and 2018, subsidising charging stations was nearly four times as effective at boosting EV adoption.”
Implementing both forms of incentives could be particularly effective for countries like Australia, Canada, and France, which have slower adoption rates.
The obstacles that Norway has been facing when it comes to re-defining its transport policies can be expected in other countries that have applied similar incentives. “But I think other countries should also apply stimulus measures in the early stages, like Norway once did. Then, when you come to a level, especially where we in Norway are today, you need to roll back in order to not increase the number of cars,” Grimsrud from TØI stated.