Norway has a weird problem: it’s running out of gas cars to tax
Battery-powered electric vehicles accounted for 77.5 percent of all new car sales in September. Norway has leapfrogged the United Kingdom, where 15 percent of new car sales were electric as of October, and the United States, where the rate is only 2.6 percent.
Norway’s electric dream has been attributed to a slew of tax advantages and other financial incentives that allow companies like Tesla to compete on pricing with internal combustion engines. However, the success of these incentives has resulted in an unusual situation: Norway is running out of dirty automobiles to tax.
It’s a significant issue. The previous administration — a center-right coalition that was replaced by a center-left minority government in October — estimated that the popularity of electric vehicles was draining the country’s annual revenue by 19.2 billion Norwegian krone ($2.32 billion). While electric vehicles are good for the environment, their rapid adoption in Norway is causing major fiscal problems.
The journey to this point has been long — and it can teach other countries who are trying to phase out gas-guzzling combustion engines. The world’s most progressive electric vehicle policies began with a pop band, an environmentalist, and a little red Fiat Panda in Norway. In 1988, activist Frederic Hauge came to Bern, Switzerland, with fellow green campaigners from the band A-ha, where they discovered the red Fiat. The automobile had been adapted to run on a lead battery by a previous owner, and the organization planned to use it to persuade the Norwegian government to support the use of electric vehicles.
The Fiat became the focal point of a nine-year campaign in which Hauge and members of A-ha drove it without paying tolls on Norway’s toll roads. The fines piled up, and if they weren’t paid, the vehicle was detained and sold at auction, where Hauge bought it again and continued the toll-dodging cycle. The A-ha members’ notoriety added glamour to the campaign against EV tolls, while Hauge — who has run an environmental organisation called Bellona since 1986 — courted press attention to seek electric car incentives. “He made the media and politicians aware of the electric car by being a positive vigilante,” says yvind Solberg Thorsen, director of Norway’s Road Traffic Information Council, which publishes statistics about the country’s roads and automobiles.
In the late 1990s and early 2000s, the group’s pushed for incentives began to bear fruit, giving EVs a higher standing on Norway’s highways. EVs were granted exemptions from all tolls and parking fees, as well as the ability to bypass traffic by using bus lanes. More importantly, new EV purchases were free from a slew of taxes, including VAT and purchase tax, resulting in a new Volkswagen e-Golf costing €790 ($893) less than a VW Golf with a combustion engine.
The difficulty was that the policy was so highly received that it eliminated a significant source of revenue for the government, according to Anette Berve, a spokesperson for the Norwegian Automobile Federation, which represents car owners. “So this is a conflict between two opposing goals.”
Officials are depriving electric cars of their special status in a bid to recoup lost revenue, igniting furious discussion and anxiety that the government will compromise its aim of selling no new cars with combustion engines by 2025. In 2017, the toll charge exemption was the first to be phased out. As part of ongoing budget negotiations, Norway’s center-left coalition government is considering eliminating a much broader range of incentives.
Which taxes will be reintroduced is a source of significant uncertainty. Taxes on plug-in hybrids, a tax on second-hand EV sales, a tax on “luxury EVs” costing more than 600,000 Norwegian krone ($68,650), and the revival of an annual ownership tax for EVs are the four most likely to return, according to the country’s car associations and environmental groups.
Frode Jacobsen, a Labor Party MP, would not comment on the ongoing budget debates in detail, although he stated that current proposals include a tax rise for some plug-in hybrids. He said that the tax on “luxury EVs” will not be included in next year’s budget, though he did not rule it out for subsequent years.
In another country, a left-wing government would be unlikely to approve such initiatives. However, Lasse Fridstrm, a senior research economist at Oslo’s Institute of Transport Economics, argues that now that EVs are no longer a novelty, there is a feeling across the political spectrum that it is time to tax them. “The new Labor government has just maintained the policy of the previous right-wing or Conservative government,” he continues. “So, certainly, there is agreement. The environmentalists, on the other hand, are not pleased.”
Environmentalists in Norway said they are not opposed to levying EV fees as long as fossil fuel vehicle tariffs remain high. However, there is danger that the incorrect taxes will be imposed too quickly. “This could result in catastrophic setbacks,” Hauge warns. “It seems bizarre to reintroduce VAT for cars over 600,000 krone because those are the cars that are helpful” in rural areas, where people spend more time on the road — and need to drive EVs across long distances, he argues.
Berve is likewise concerned about the passage of time. A tax on old electric car sales, she argues, would derail the industry before it had a chance to flourish, while a tax on hybrids would disadvantage drivers in the north who lack access to the substantial charging infrastructure seen in the south. She agrees with the consensus in Norway that hybrids are a “transitional technology” that will eventually obstruct full electrification. “However, we believe it is a transitional technology that is still needed because [the EV market] is not fully developed,” she says. According to the Road Traffic Information Council, electric vehicles account for only 15% of Norway’s total vehicle population. By worldwide standards, it’s a sizable amount, but there’s still a long way to go.
The people who haven’t yet joined the ranks of EV drivers, according to Unni Berge of the Norwegian Electric Vehicle Association, a consumer organisation that represents EV drivers, will be worried by the removal of incentives, not existing EV drivers. “We’re not fighting for our members; we’re fighting for new people to become EV drivers,” she says, adding that the group’s main goal was to maintain VAT and purchase tax exemptions.
In addition to being under pressure to maintain high levels of EV ownership among future generations of drivers, the government must also decide what happens after a country’s roadways are completely filled with electric vehicles. Some argue that the focus should be shifted to eliminating unclean commercial vehicles, which include everything from small vans to large trucks and even diesel-powered ships. Others, on the other hand, are advocating for a future in which the emphasis is shifted away from vehicles and toward buses, trains, and trams.
Greenpeace Norway’s Halvard Raavand emphasizes that while electric vehicles do not emit emissions when driving, they nonetheless have an influence on the environment. He claims that the creation of larger highways is justified because there are more cars. They use energy during manufacturing as well as when they’re plugged in, depending on where they’re charged.
A country that produces more oil per capita than Saudi Arabia or Russia appears to be an improbable location for the post-car future to take shape. References to Norway’s massive oil exports, which account for more than a sixth of the country’s GDP and more than a third of overall exports, are conspicuously absent from the debate concerning domestic travel. “We have to keep electrifying,” Raavand says. “At the same time, we must remember that we must improve public transportation and maintain a focus on strengthening railway infrastructure rather than simply building additional motorways.”
