Nov 18, 2021 7:00 AM

Norway Is Running Out of Gas-Guzzling Cars to Tax

The oil producing nation is learning what happens after a country fills its roads with electric vehicles.

Automobiles produced by Tesla Inc. sit dockside after arriving on the Glovis Courage vehicles carrier vessel at the Port...

When it comes to sales of electric cars, Norway is in a league of its own. In September, battery-powered electric vehicles accounted for 77.5 percent of all new cars sold. That figure makes Norway a world leader by a long way—leapfrogging over the UK, where 15 percent of new car sales were electric as of October, and the US, where that number is just 2.6 percent.

Norway’s electric dream has been credited to a series of tax breaks and other financial carrots that mean brands like Tesla can compete on price with combustion engines. But these incentives—and their success—have created a unique predicament: Norway is running out of dirty cars to tax.

It’s quite a big problem. The previous government—a center-right coalition that was replaced by a center-left minority government in October—estimated that the popularity of EVs was creating a 19.2 billion Norwegian krone ($2.32 billion) hole in the country’s annual revenue. While EVs might be great news for the environment, their rapid success in Norway is now forcing some serious fiscal consternation.

The road to this point has been long—and offers lessons to other countries racing to ditch gas-guzzling combustion engines. In Norway, the most progressive electric vehicle policies in the world started with a pop group, an environmentalist, and a small red Fiat Panda. It was 1988 when activist Frederic Hauge, along with fellow green campaigners from the band A-ha, traveled to the Swiss city of Bern, where they found the red Fiat. A previous owner had converted the car to run off a lead battery, and the group planned to use the vehicle to persuade the Norwegian government to encourage electric vehicle uptake.

The Fiat became the centerpiece of a nine-year campaign in which Hauge and members of A-ha drove the car on Norway’s toll roads without paying. The fines racked up, and when they remained unpaid, the vehicle would be impounded and sold at auction, where Hauge would buy it back and repeat the cycle of toll dodging. A-ha’s celebrity members added glitz to the crusade against toll fees for EVs and Hauge—who has led an environmental group called Bellona since 1986—courted press attention to demand incentives for electric cars. “By being a positive vigilante, he made the media and also the politicians aware of the electric car,” says Øyvind Solberg Thorsen, director of Norway’s Road Traffic Information Council, which publishes statistics about the country’s roads and vehicles.

Eventually, in the late 1990s and early 2000s, the incentives the group campaigned for started to materialize, handing EVs a superior status on Norway’s roads. Rules were introduced that exempted EVs from all toll charges and parking fees and allowed them to skip traffic by using bus lanes. More meaningfully, purchases of new EVs were exempted from hefty taxes—including VAT and purchase tax—meaning a new Volkswagen e-Golf cost €790 ($893) less than a VW Golf with a combustion engine.

The problem was that people responded to the policy so well that it eradicated an important source of income for the government, says Anette Berve, spokesperson for the Norwegian Automobile Federation, a group representing car owners. “So this is a clash of two different goals.”

In an attempt to claw back lost income, officials are stripping electric cars of special status, sparking fierce debate and concern that the country could jeopardize its goal of selling no new cars with combustion engines by 2025. The toll charge exemption was first to go in 2017. Now, Norway’s center-left coalition government is considering removing a much broader list of incentives as part of ongoing budget negotiations.

There is widespread uncertainty about which taxes will be reintroduced. But the country’s car associations and environmental groups believe the four most likely to make a comeback are taxes for plug-in hybrids, a tax for second-hand EV sales, a tax for “luxury EVs” that cost more than 600,000 Norwegian krone ($68,650), and the resurrection of an annual ownership tax for EVs.

Labor Party MP Frode Jacobsen would not comment in detail on the ongoing budget discussions, but he confirmed that current proposals include an increase in taxes for some plug-in hybrids. The tax for “luxury EVs” will not be included in next year’s budget, he added, although he did not say it had been ruled out for following years.

In another country, it would be surprising for a left-wing government to support such policies. But Lasse Fridstrøm, senior research economist at Oslo’s Institute of Transport Economics, a research institution, says there is a sense across the political spectrum that it’s time to tax EVs now that they are no longer a novelty. “The new Labor government has just kept the proposal made by the former right-wing or Conservative government,” he adds. “So yes, there is consensus. But the environmentalists, of course, are not happy.”

Norway’s environmentalists say they are not against the idea of taxing EVs so long as taxes for fossil fuel cars stay high, too. But there is concern about the wrong taxes coming too soon. “This could cause major setbacks,” says Hauge. “Reintroducing VAT for cars above 600,000 krone seems like a strange thing to do because those are the cars that are useful” in rural areas where people spend more time on the road—and need to drive EVs over long distances, he says.

Berve is also worried about timing. She believes a tax on used electric car sales would undermine the market before it’s had a chance to develop, while a tax on hybrids would disadvantage drivers living in the north of the country who don’t have access to the extensive charging infrastructure that exists in the south. She echoes the Norwegian consensus that hybrids are a “transitional technology” that will eventually stand in the way of full electrification. “However it is a transitional technology that we believe is still needed because [the EV market is] still not completely mature,” she adds. Case in point: EVs still only make up 15 percent of Norway’s entire vehicle population, according to the Road Traffic Information Council. It’s a substantial number by global standards, but there’s still a long way to go.

Unni Berge of the Norwegian Electric Vehicle Association, a consumer group that represents EV drivers, says it’s not existing EV drivers who will be threatened by the withdrawal of incentives—but rather the people who haven’t yet joined their ranks. “We are not fighting for our members but fighting for new people to become EV drivers,” she says, adding that the group’s main goal was to make sure VAT and purchase tax exemptions stayed in place.

As well as facing pressure to maintain high levels of EV ownership among future generations of drivers, the government must also decide what happens after a country fills its roads with electric vehicles. Some believe the focus should shift to eradicating dirty commercial vehicles—from smaller vans to hulking trucks and even diesel-powered ships. But others are campaigning for a future where the emphasis shifts away from cars and focuses on buses, trains, and trams.

Halvard Raavand of Greenpeace Norway stresses that although EVs don’t release emissions as they drive around, they still have an environmental impact. More cars justify the development of bigger roads, he says. They demand energy during production and, depending on where they are charged, when they’re plugged in.

A country that pumps more oil per capita than Saudi Arabia or Russia seems an unlikely place for the post-car era to unfold. References to Norway’s vast oil exports—which make up more than one-sixth of the country's GDP and more than a third of total exports—are also notably absent from the debate about travel inside the country. “We need to keep on electrifying,” says Raavand. “But at the same time, we also need to have in mind that we need to improve public transport and make sure we keep an emphasis on improving the railway infrastructure instead of just building new highways.”