Norway’s electric car subsidies: A lot of money for not a lot of gain

Like many countries in the West, Norway, an oil exporter, wanted to clean up its act. The centrepiece of that effort was the mass rollout of electric vehicles and the results have been spectacular – some 60 per cent of new car sales are EVs.

Norway is the EV capital, with the highest per capita penetration of battery-powered cars on the planet. Teslas, Nissan Leafs and Renault Zoes are ubiquitous. In every other country, they are still rarities.

That’s the good news. The bad is that the sales of those EVs has come at great cost to the taxpayer, and will continue to do so as Norway pursues an all-EV fleet. Those billions of dollars of subsidies might have been put to far more effective use elsewhere in Norway’s carbon-reduction effort.

But no, the government went for the sexy, high-profile option, one that could prove financially unsustainable while producing only a small reduction in the output of greenhouse gases. Norway’s lavish EV freebies have actually intensified the car culture, not diluted it. The less glam options, such as public transportation, got buried in the green plan.

When I was last in Norway, I visited a friend in the suburbs of a small seaside city about two hours from Oslo. He and his family ran two regular gasoline cars and a Japanese EV. When I asked why he bought the apparently superfluous EV, he said: “Because I could not afford not to.”

Counterintuitively, the gas cars were for local use, the EV for highway use. Norway’s highway tolls were expensive and EVs were exempt from paying them. His office was about an hour away and he saved a small fortune by using an EV to get there, and where he could recharge the batteries for free – a double win.

But zero road tolls were not the only purchase incentive for an EV. Norway decided in the 1990s that EVs were the way to go as “global warming” entered the everyday lexicon and the country became acutely aware that its massive North Sea oil industry was part of the climate problem. Norway was rich – still is – and a cynic (not me, of course) would say that EVs became a luxury form of greenwashing for Europe’s premier petro-state.

But EVs were, and remain, highly expensive, well out of the reach of the average family. To make them affordable, the national and local governments in Norway rolled out incentive after incentive. Here are a few of them: exemption from the 25-per-cent value-added (VAT) tax on new car purchases; exemption from import duties; exemption from emission fees; no fuel taxes; cut-rate insurance; and ultra cheap or free parking, road tolls and car ferry tickets.

Many cities also gave EVs unfettered access to bus lanes.

The upshot was that buying an EV was often cheaper than a regular car, the reverse of the norm. Take the Volkswagen Golf. In Norway, the regular Golf costs about €36,600 ($57,000). The e-Golf costs €25,300. Plus the running costs for the e-Golf are a bargain. How could anyone refuse?

Obviously, the incentives come at a price, which is lost tax revenue to the government and the municipalities. Two years ago, a well-known Norwegian fact-checking site, faktisk.no, put the annual subsidy at about 5.8 billion kroner, or about $852-million at current exchange rates. That’s a lot less than other estimates, but still huge when you consider that Norway’s population is only 5.4 million and that Canada’s economy is 4.5 times bigger than Norway’s.

In spite of the outsized cost, other countries are lifting pieces from the Norwegian EV model. Last week, the German government announced that it will throw an extra $7.6-billionat the EV industry in the form of cash purchase bonuses and expansion of the country’s charging network, an effective back-door bailout for pandemic-hit car makers dressed up as a climate program. Almost every European country has EV incentives that range from the modest to the sumptuous, with Norway’s at the top of the scale.

As a climate change effort, Norway’s embrace of EVs has worked, but only a bit. Road traffic emissions fell by about 10 per cent between 2014 and 2018, though the continued improvement in the efficiency of regular cars no doubt helped. But what if those billions in EV subsidies over the years had been devoted to other climate efforts, such as home insulation, the expansion of public transport or tighter emission controls on office buildings and factories? The drop in emissions might have been significant.

As it is, Norway’s EV subsidies look like a giveaway to the auto industry, an effort that is putting more cars on the road. Indeed, the total number of cars has climbed in recent years, partly because it appears that most buyers (such as my Norwegian friend) are not swapping their regular car for an EV; the EV is an addition to the regular car. No country, no city, needs more cars. What they need is fewer cars and credible reductions in carbon emissions. The Norway plan, so far, has done neither – at great expense.

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