ParisTech Review / Editors / 2015-05-25
It is a paradox: despite huge oil reserves supporting their wealth, Norwegians have become, in a few years, the first users of electric vehicles. These represent 18% of new registrations since the beginning of 2015! The key to this unprecedented growth, nowhere else to be found, is their convincing policy of incentives… so convincing, in fact, that their designers have been overwhelmed by its success: the model is bound to evolve.
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Tesla dreamed of it and Norway did it: in September 2013, the Model S dethroned the Golf to become thecountry’s best-selling vehicle, with 616 registrations and 5.1% market share. It must be said that the benefits granted to electric vehicle purchasers are considerable: in a country known for taxing heavily imports of automobiles (especially luxury sedans), tax exemptions can reach up to €80,000 i.e. half the price of the Model S !
Record growth
In the first quarter of 2015, nearly one in five cars sold in Norway were working with electricity. This small country of 5.1 million inhabitants holds one third of the European market. The symbolic 50,000th electric vehicle was sold in April. Of course, this figure needs to be put into perspective when one considers the magnitude of the Norwegian fleet (approximately 2.5 million vehicles), in which electric cars account for only 2%.
The government had planned to reach this threshold in 2017. The aim of the operation was to reduce pollution and specifically, CO2 emissions, 10% of which come from motorized transport in Norway. Since the 1970s, these have continuously increasedwhereas in a country like France, they have fallen regularly since the 1980s.
To achieve this goal, public policies were designed as incentives that play both on the financial and practical aspects.
On the financial side, the zero-rated purchase is, according to the Norwegian Electric Vehicle Association, the most important incentive. And indeed, both the 25% VAT and purchase tax (very high on ordinary cars) are deleted. To these initial net savings, a great number of others can be added: free tolls, ferries and parking lots as well as free charging points.
According to a study realized in 2014 by the Norwegian Association for Electric Vehicles, 48% of buyers rank money saves as the top reason that made them chose an electric vehicle. 27% refer to environmental concerns.
On the practical side, the efforts in terms of infrastructure are significant: the country has 50,000 public charging stations and nearly 200 free charging stations. Their location can be tracked thanks to the NOBIL base, developed and operated by the Norwegian Association for Electric Vehicles in cooperation with Transnova.
Another element adds to these advantages: the ability to use bus lanes and avoid traffic jam, which is quite common in a country that, just like post-communist Russia, has seen the number of vehicles explode within decades but where the infrastructure hasn’t kept the pace.
Drawbacks
And precisely, the first protests have been directed towards this common use of public infrastructure. In a country committed to equality, luxury sedans circulating in bus lanes have triggered mixed reactions.
Other drivers are annoyed by this preferential treatment, not to mention bus drivers: according to a study quoted by Business Insider, 85% of traffic in these lanes consists of electric vehicles and today, bus drivers consider that this has become a problem for public transport. As pointed out by a bus driver quoted in Business Insider: “Time lost by thousands of our passengers in traffic is far greater than that gained by a few dozen electric car drivers.”
In short, there is a conflict between a public policy to “save the planet” and another which gives priority to public transport. In other words: the happy combination of these two public policies was possible only when electric vehicles were rare. The balance is disrupted once they start proliferating. Today, we have clearly reached a saturation point.
Other criticisms can be added. The country is prosperous and the Norwegian State is well managed, but the cost on public finances is not insignificant. In 2014, officially, the tax exemption alone accounts for 4 billion kroner (600 million euros as for April 2015). Besides, this cost has passed expectations by over 20%.
Moreover, the country has no automotive industry: billions of kroner have been spent to support the Californian economy (Tesla) and the Japanese industry (Nissan).
Finally, some environmentalists point out that even if the energy they consume comes almost exclusively from hydropower, these “clean” vehicles use raw materials whose extraction destroys nature. This concern adds to the discomfort among Norwegian environmentalists to live in a country that draws most of its wealth from oil sales.
But among all these criticisms, one sticks out: support policies to electric vehicle are overheating. As for the results, they are modest: CO2 emissions fell by 0.3% from 2012 to 2013 (see the latest figures available).
Enough to reconsider the experience?
Towards a revision of aids
In 2014, the Ministry of Finance already announced changes in these subsidies. They should have gradually disappeared in 2017, when the 50,000th vehicle was projected to be sold.
But since this threshold has already been reached, the authorities are playing for time. There is no question of undermining the created momentum, if only because the state has made commitments and must keep its word.
They will therefore announce simple adjustments.
Common sense suggests to spare those who have already acquired a vehicle. Therefore, adjustments will only affect aids for the purchase of new vehicles. But Christina Bu, Secretary General of the Norwegian Association for the electric vehicle, rises against this method and notes that the market is not mature enough to get rid of tax incentives and could collapse if VAT and other taxes were reestablished too abruptly.
In an interview with EurActiv in February 2015, the Minister of Transport Ketil Solvik-Olsen was going in the same direction and hinted that changes would only be superficial.
According to Solvik-Olsen, the Norwegian model is limited by other factors. First of all, the experience “might not work in countries with a powerful automotive industry,” which would not accept competition distortions benefiting to specialized manufacturers like Tesla.
Second, it makes sense in Norway because the country can count on abundant electricity production from hydropower, which is now supplemented by wind power equipment that produce surpluses. If a country were to burn gas or coal to run its electric cars, it would make no sense at all.
The Norwegian model is therefore not exportable. Will it be sustainable? Judging by the statements of the minister, the country intends to continue the experiment. Wait and see…
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