What is it with Norway and electric cars?

If you live in Norway and have some interest in electrification and green issues in general, one topic is bound to come up: cars, electric cars, battery powered cars. The EU has planned to be "zero emission" by 2050, which for cars means battery powered electric vehicles (EVs), but is far from this goal: In 2019, only 3,6 per cent of all new cars bought in the EU were "plug-ins". The highest adopters, Netherlands and Sweden, had 11-13 per cent plug-ins, but they were mainly hybrids, fully zero-emission cars were at four and three per cent respectively

Norway, on the other hand, is already close to reaching this hairy target: 56 per cent of new cars sold were plug-ins in 2019, of which 42 percent were pure electric (BEV, "battery-electric vehicle"). In early 2020, plug-ins reached 75 per cent of all new cars, of which 56 per cent BEVs. Petrol and diesel cars ("internal-combustion", or ICEs, for short) dropped to about ten per cent each. 

It is of course of great pride to Norwegians to be so far ahead, but the significance is elsewhere: As long as EV adoption remains at 3 per cent (UK) or 1,9 per cent (US), it can reasonably be considered a special interest, for the committed few. Buyers can be asked: why did you choose an EV, rather than a "normal" car? In Norway electric cars in some form or other is now the norm (for new purchases!). So that question is no longer relevant, it is what regular people buy. But not all people, of course, so the question is rather: why did you not buy an EV?

A political choice

How did Norway got to this stage? That must be of interest to figure out if this is the direction the rest of Europe (and other countries) have decided to go. Does Norway provide a model they can follow? The answer is both yes, maybe, and no. 

Evidently, Norwegians are not more concerned with the environment than other Europeans. We have a green consciousness, but cash is more important. Surveys show that economics and practicalities are what dictate car choice, the green environment is at best a nice extra. So, we have to look at the economic incentives that have been provided to further EV sales. 

1950s: a rationed luxury

It is often said that it is because we, as a wealthy country, can afford to subsidize EVs. That isn't completely accurate, although there is some truth to it. The state's freedom to intervene stems not just from our current wealth, but as much from our history as a poor country. After the ravages of World War II, Norway was in dire need of reconstruction, but our foreign currency reserves were depleted. We never had an automotive industry, unlike our neighbours in Sweden, and private cars were seen as an unecessary luxury that only siphoned off our meager currency reserves. Accordingly, imports of foreign cars were strictly rationed - you were not allowed to buy a private car unless you were a doctor, vet or otherwise could prove transportation need - all the way until 1960 (I remember from my childhood a neighbour who had gone to Sweden to buy a used Volvo - used cars were legal. However, it was so nice looking that he had to muddy it up, he claimed, for the customs people to accept that it wasn't an illegal new car.)

Diesel car: 113 per cent tax

Even when the restriction was lifted, cars were considered a luxury item that drained foreign reserves, so to discourage imports, a very hefty purchase duty, a so-called "one-time fee" [engangsavgift] was levied on all new cars, and particularly on larger cars considered more luxurious. Even when private cars had become ubiquitous in the 1970s and 1980s, a duty once imposed was of course never removed. People complained, but had gotten accustomed to it, even when VAT was introduced and 25 per cent was slapped on top. How the one-time fee is calculated has varied over time, engine size was important, today CO2 emissions is the crucial element. A larger car having a factory price on import of €22,000 (Ford Galaxy Diesel, chosen at random) has a one-time fee of €19,000 and VAT of €5.400, making a total of €47,000. Small cars may have one-time fees at around 35-40%, plus VAT, still adding a whooping 65% fee and tax on top of the factory price. 

The no-fees car

So, you see where this is going. Any car with a battery will have a smaller CO2 ["tailpipe"] footprint, and a full battery EV will have none. It was thus easy for the government, once they decided to favour zero emission, to dispense BEVs from the one-time fee altogether. That fee will probably not be re-imposed, as long as it is based on CO2 emissions. It is thus not actually a subsidy, it is just in the logic how this fee is calculated for all cars. But then, the government in 2001 in addition decided to dispense BEVs also from the VAT, while all other cars, including all kinds of hybrids, pay the full 25 per cent. 

The VAT exemption is, more than the one-time fee exemption, clearly a form of indirect subsidy, and it was never meant to be eternal: It was to be a short-time measure to compensate for the higher factory prices of EVs. It was intended to last until 50,000 EVs were registered in the country. But when that target was reached in 2015, the measure was so popular that government decided to extend it through 2017, and then through the next parliamentary period to 2021. It was a snowball that threatens to become unstoppable, due not least to the pride I mentioned in "Norway is the best in the world" - we are suckers for that - but of course mostly by the universal rise of the green wave, also in Norwegian politics - the Green party may well have the casting vote after the next election, and is an important part of the red-green group that governs the capital Oslo. Few parties dare to talk of removing a measure that may actually allow us to reach the target of zero private car emission in a foreseeable future. 

No tax - did I pay for that?

Still, some voices have questioned it. The EU has raised the issue of whether it an unfair subsidy; but there is also the "Tesla factor". Tesla appears to benefit more than other cars from the fee exemptions, not just because a higher price means that more VAT is lost, but also because of its appearance: that of a luxury sports car. A petrol car of the same type - a Porsche, for example - would most likely (in the public mind) be a gas guzzler and would therefore carry a heavy one-time fee, like other luxury cars: a car like a Tesla S "should" have cost €150,000 or 250,000, not €60,000 as it does. That is money that is taken from the tax payer and given to the filthy rich. Politicians are sensitive to such talk as well, although they do recognize that EVs are "normal cars for normal people" now. So, rather than abolishing the VAT exemption in general, they are likely to begin imposing some form of VAT on the more expensive models, e.g. those costing more than e.g. €60,000. But only after 2022. 

A model?

Other countries have also used tax incentives or direct subsidies, but in a more limited form; thus the US have time-limited tax rebates of up to $7,500, while Britain have rebates up to £5,000. But they have never been blanket or so long-lasting as Norway's, and because of the unique history of the Norwegian one-time fee, they could never reach its extent. In effect, compared to a petrol car, the Norwegian exemptions may cut the price in half of more. That does come at a cost, the one-time fee alone brought in about €2,000 mill. in 2010, and with half of new cars now fully exempt, and hybrids reduced (because of lower CO2), that is a noticeable budgetary loss. But it is a desired loss, in the sense that the one-time fee is based on taxing unwanted CO2 emissions. So, like in many types of taxation that aim to direct citizens towards a desired behaviour, the end target is that the fee disappears. The VAT is different, and sooner or later that will be reimposed. But EV advocates argue that it should wait until global EV production has ramped up so high that EVs have competitive prices with ICEs from the factory gate. 

To what degree other countries can copy this, depends of course on the taxation structure (and financial elbow space) of each country. But there is no question about what the key element of the Norwegian success is: it is to remove the financial issue altogether for new car purchases: It is in any case a big investment to buy a car, and particularly a new car. But if you have decided to do so, it does not matter pricewise whether you pick the electric or petrol option: they cost roughly the same. So, your choice is made by other factors than price. 

Price ranges EV vs. petrol and diesel

To illustrate this last point, let us take a few examples. (To make it easy, I here only cite "entry level price" for each trim, and as our battered Krone jumps up and down now, I use a fictitous exchange rate of €1=10 NOK. Just now, a US $ is 9,75 NOK, a euro 10,70, so you can replace € with $, if you like, a £ is about 12 NOK, so reduce the figures a little).

Corsa: €22-32,000

Typical cars that have both a petrol/diesel and battery-only power train:

Opel Corsa: Four petrol variants, from €22,000 [75hp] to 32,000 [130hp]

Opel e-Corsa: 25,000

Peugeot 2008 petrol: from €26,000 to 38,000

Peugeot 2008 diesel: from €26,000 to 34,000

Peugeot e-2008: from €28,000 to 33,000

Virtually all cars that have both an ICE / hybrid and an EV version, show the same pattern: the EV is "in the middle" between the ICE trims. The one exception is VW Golf, where the petrol version starts at €39,000, while the e-Golf is at 26,000. That is the only model were the EV version is clearly lower than the ICE, and it is of course a very popular car, which may explain the price. Plug-ins (PHEVs) only have a small tax reduction, and is typically more expensive: the very popular Hyundai Kona electric just had a 4,500 price hike to 35,000, but still did not reach the PHEV price of 36,500. The Iconiq from the same factory costs 31,000 as PHEV, but 27,000 as BEV. 

A model for Europe?

So, can the Norwegian experience serve as a model? That may be presumptious, but if some elements may be learned, they could be:

        The key seems to be the discrepancy in purchase price. Norway introduced a number of other perks, like reduced annual fees, access to bus lanes, free public parking, reduced road tolls, which may all influence people's choices. But the main element is that one huge outlay, the purchase. Abolish the difference between EVs and ICE cars there, and then the other considerations may or may not make regular buyers, normal non-comitted people, choose zero emission. 

Whether that is possible, depends on each country. Norway does have a solid economy, and the state can forgo the revenue lost on the tax rebates without problem. That may not be the case for every country (in particular after the current covid crisis, of course, the effects of which may be with us for years). But rumours are that the EU is thinking along these lines, towards a VAT reduction on EVs. It may however not be enough. Norway has a flat 25 per cent VAT on most object, including all other cars, other EU countries have much lower VAT rates on cars, so removing it may not be as effective. 

However, it is clearly seen above that the greatest impact was the removal of the special "one-time fee", which could double the ICE price. Other countries may not have large enough taxes or fees on ICE cars that removing them for EVs would have enough impact to even the price difference EV/ICE. The alternative would be to impose some sort of CO2 emission fees on the purchase price of EVs, like in effect our one-time fee is, but that is likely to be politically impossible. You might tax the petrol and diesel fuel itself further, also inflammable measures, but that would most likely not move people to EVs if the purchase price is several thousand euros higher than the comparable ICE car. 

So it may or may not be feasible to go the same way, depending on the country. What the example shows, however, is the importance of the measure being both general and long lasting. The VAT exemption in Norway came as early as 2001, but it did not have measureable effect until the late 2010s, when a wider range of EV models became available. And it must remembered that while the measures are mostly limited to pure battery powered EVs, these still only constitute half of new cars - hybrids, still taxed, make up another 30 per cent. So, even with the purchase price out of the way, there are still reasons why people choose cars burning petrol, in spite of the petrol costs (normally c. €0,10 per km driven, compared to an average €0,01-0,02/km el). Which reasons? 

Reasons not to buy an EV

I have not done any research on why people actually make this choice! But some possible reasons for not buying an EV might be:

(1) I am on a limited budget, I could not possibly spend more than €10,000 or 15,000, as long as I get something that rolls. True. Clearly, there are many used EVs on the market, but that price range (cars 7-10 years old?) would only get you tiny Mievs or at most an old Nissan Leaf with limited range, which might not fit your needs. This will probably remain valid for another five years or more, until current cars reach that age and price level. 

Curbside charging?

(2) I live in an apartment, and have no place to charge at home, and charging commercially is expensive and inconvenient. True. A recent youtuber noted that in Shanghai, he had low-cost overnight chargers basically on every block. In Norway, we do have a few municipal ones in the major cities, but to make a difference, they should be everywhere, at least in the older residential parts of the city where flats generally would not have garage space: Small AC chargers near where residents park their cars overnight (on streets or in parking lots), priced similar to home charging. That should be a municipal task.

(3) I have a family, and I need a car with sufficient space, preferably enough for one or even two baby carriages and luggage. But I can't afford a Tesla. True. For some reason, while many EVs now have abundant range and strong motors, with 200 hp or more, they are all compact, SUV or SUV-like. ICE cars have a much wider range in size. For large families there are a number of seven-seaters, and many others with ample luggage space, like in a traditional station wagon. There are large variety of such with a petrol engine, ranging from the popular Skoda Octavia from €29,000 for 610 litres; a family willing to invest up to €50,000 for a car with 500 l or more luggage space will have 25 different models to choose from (and course equally ample choice in lower-cost used cars). That is also true for hybrids, PHEV or not, there are about half a dozen models in the category. 

Octavia: not an EV

But not a single battery-powered vehicle, you must then go up to the Audi eTron at €65,000 [and typically in trims over €80,000, 660 l]. From there, there is a large gap down to 451 litre in the SUV-like Kia eNiro (€35,000) and MG ZS (448 l, €24,000). That this is important is shown in that the eTron, in spice of its high price and fairly limited range, is currently the clear best seller in the country, ahead of more modestly priced cars like the eGolf and the Zoe, at half the price. This shows the need for such larger family cars in the market, size over range. 

(4) There are too few fast chargers around, and I can't be bothered to wait in queue for hours at end. That is less and less true, in particular as affordable long-range cars can drive for up to six-seven hours on a charge. But there is still something to it. Fast chargers abound around main arteries and larger cities, but if you go off-piste, you may have to plan your trip with this in mind; and anecdotes of non-functioning chargers and holiday queues are not without truth. Clearly, there is room for improvement here, but it is an area in rapid expansion, so it may be more a matter of how the situation is perceived by ICE holdouts than everyday reality. 

Still, there is of course the difference between two philosophies when you are on a trip, "charge when you can, not when you must" (pessimism) or "charge when you take a break anyway" (destination charging). Along the main roads, you can certainly do the latter, over the mountains, preferably the former. 

However, for long holiday trips, one surprising thing for sucn an EV-utopia as Norway, is the scarcity of overnight destination chargers: that is, hotels, camp sites and elsewhere where travellers spend the night. All hotels have as a matter of course parking spaces for the guests, but if these have charging at all (rather than: "there is a fast charger you can use down the road"), they are few and probably not exactly up to code ["granny sockets"]. That should change; when you are on a holiday trip with a car, you should be able to assume that there is a parking space where you stay the night, and that you can charge up for the next day's trip where you are staying. Sweden seems to be ahead of us on this score. 

What is to be done?

Roomy: but PHEV only, not BEV

The four points above are just possible arguments against buying EVs, I have, as I said, not made any survey! But, once the purchase price is eliminated as an argument, it is logical to assume that such practicalities govern the choice a buyer makes: Access to charging, and whether the EV models on the market answer the needs the user wants. I am myself all in favour of removing "range anxiety", and first-time EV buyers clearly want their new cars to match petrol cars in how far they can go. This clearly is an important argument for the 20 per cent or so that buy plug-in hybrids, even though these enjoy few of the economic benefits of BEVs, and are thus on the more expensive side. But, in addition to, and possible more important than, the removal of range anxiety, there are many PHEVs that have the same luggage and passenger space as their ICE relatives, unlike battery EVs. So, by spending that money you can combine being electric in daily commutes with having the space your family needs. 

As I said, the Norwegian case may perhaps show a path towards zero-emission private transport, but the reasons we got so quickly off the mark on this, relates to our particular currency protection history that may be difficult to reproduce, without considerable political cost: to increase the fees / purchase price of combustion engine cars to match EVs may very well be politically impossble.

    The more important elements of this example are probably the other side of this argument: even when prices are even, why do people still buy cars that require petrol or diesel? And what can we do get around these arguments? The points made here point in two directions: Charging - and perhaps not so much fast or super-fast charging, as making cheaper overnight charging accessible whereever the car sits while you sleep: outside your city apartments, in hotel parking lots or whereever: When all or most cars are plug-in, every overnight parking space should have an overnight charger.  

    The other is for the car manufacturers: There is a glaring unevenness in the types of EVs offered: to focus on small urban cars was evident when the typical range was 100-150 km. That is no longer case, with the e-Up! type doing 250 km, and 350-400 km is fairly normal. Now it is all compact cars and SUVs. But what we need to make the next step of the transition, are roomy family cars, the 600 litre Skoda Octavia type, or 7-seat large family type, with the same 350-400 km range, and at a price range for the normal young family. When EVs can fill all categories of personal cars with equivalent performance as an ICE or better, then we can approach the zero-emission target.