Across the developed world, nations are struggling to adapt to the sustainable economic models that emissions and climate targets demand of them. In the US, only 2% of cars sold in 2020 were electric. Europe did not fare much better: EVs only accounted for 10% of total car sales in 2020.
If governments are serious about meeting climate targets, they must act imminently to accelerate the transition to a sustainably powered transport sector. Figures from the UK Department for Transport indicate that the transport industry is the single largest emitting sector of greenhouse gases, producing 27% of all UK emissions in 2019. Whilst recent data may illustrate a decrease in this figure, it is undoubtedly clouded by the pandemic. This data shows that a key aspect of any government’s plan to tackle the ‘climate emergency’ must be accelerating EV’s road to the mainstream.
There are multiple issues with selling EVs to the masses. Firstly, EVs are too expensive for most people. The average customer spends around £20,000 on a new car, yet market leader Tesla retails its Model 3 at over double that amount.
Secondly, there is an infrastructure issue. As of the 1st of April 2021, the UK Department for Transport recorded that there were 22,790 public EV charging devices, with under 5,000 of those being rapid charging devices. This then illustrates the complex problems that governments are facing when trying to encourage the development of EVs: they will have to arrange a short-term solution whereby EVs are affordable for the majority of car-owners whilst they wait for a longer-term solution to making cheaper EVs through private innovation. Furthermore, they will have to finance a nationwide expansion of charging points to make EVs practical enough to the modern customer.
One nation is largely managing to overcome these challenges more successfully than the rest of the developed world. Indeed, Norway’s EV market has undergone a rapid transformation in the last decade. The electric vehicle automotive sector has gone from a niche, potential future market, to the largest segment in Norway’s car market. Back in 2011, under 5% of total car sales were at least partly powered by renewable sources of energy. Ten years later, EV sales amounted to more than 65% of total car sales, and this is forecasted to grow to over 75% in 2022.
So, what did Norway do so differently to the rest of the developing world? And what can other governments learn and apply to their own domestic markets?
Norway’s target that all new cars sold by 2025 should be zero emission vehicles is highly ambitious. But they are on track to achieve it. They have managed to tackle the two key issues with making EVs practical to the majority of people through a range of measures:
Norway made EVs affordable by using a range of different taxes, incentives, and subsidies.
A consensus between most political parties in Norway has ensured that the car tax system has been directed by the principle that it should always be economically beneficial to choose a zero or low emission car over a high emission car. Consequently, successive Norwegian governments have adopted the ‘polluter pays’ principle, whereby there are higher taxes for higher emission cars and lower taxes with lower emissions.
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Furthermore, the purchase tax for all new cars is calculated through a combination of CO2, NOx, and weight. This means that owners of large cars with high emissions pay the most. Recently, the formula has been adapted to place more emphasis on emissions and less on weight.
Despite this extra taxation on vehicles with unsustainable sources of fuel, the Norwegian government went further to encourage more people to buy EVs through subsidies and incentives such as:
- the elimination of import taxes
- Exemption from 25% VAT on purchase
- The elimination of annual road tax (although this has now been reintroduced).
- Reduced charges on toll roads and ferries.
- Reduced parking charges
- Access to bus lanes
- Reduced company car tax (up to 50% at one stage)
- Exemption from 25% VAT on leasing
- The introduction of fiscal compensations when scrapping petrol/diesel fuelled vans when converting to an EV.
Together, these policies managed to ensure that an EV was around the same price as its non-renewable counterpart. A report by Norwegian website Norsk elbilforening showed that a Volkswagen Golf would cost more after taxes than an e-Golf, despite the fact that the e-Golf is imported for over NOK 10,000 more than its internal combustion derived sibling. By comparison, a Volkswagen Golf would still cost around £10,000 less than an e-Golf in the UK: little wonder why the UK is lagging behind Norway.
The Norwegian government has also supported the development of normal charging and fast charging ports and stations.
State funding was first used to support the development of charging infrastructure as part of a financial stimulus bill after the 2008 financial crash. This scheme provided up to NOK 50 million, supporting the development of around 1800 Schuko-points. These charging points proved to be effective at first, although many were soon replaced with faster charging Type 2 points. Nonetheless, Schuko-points are still in use in Norway, predominantly in private residences.
In 2015, the Norwegian government announced an ambitious project. It aimed to provide private companies with funding support to cover every Norwegian main road with fast charging stations every 50km. This scheme has resulted in the development of over 16,000 charging stations: a charging station for every 31 EVs in Norway. Now, private companies are building their own charging stations without any state aid.
The answer for governments here is simple: invest heavily and the market will follow.
Lessons to be learned
Whilst each domestic market is slightly different from any other, it would not be unwise to learn from Norway’s success.
Political consensus across developed nations around the vehicle taxation system would be a significant step in solving the current price difference between a fossil fuel powered vehicle and an EV. If the consensus agrees with the principle that it should always be economically beneficial to own an EV over an internal combustion vehicle, then the means of getting there in each nation are secondary. Indeed, if this agreement was widespread across the EU, UK and US, car manufacturers would invest more significantly in the development of EVs as this segment would very rapidly become mainstream.
The means of ensuring that owning an EV is economically beneficial will differ in each country. However, principles from Norway’s approach could, and should, be maintained. Firstly, the ‘polluter pays’ idea will discourage the buying of second-hand petrol/diesel powered vehicles. Additionally, removing taxation from the initial purchase and then once owning the vehicle should remain intact. Customers will see that their purses continue to benefit from owning an EV and would therefore be more likely to buy another EV when they come to buy a new car again.
Lessons can too be learnt from Norway’s approach to the development of infrastructure. The state has led the way with financial schemes and incentives to provide private companies with the funding necessary to develop charging stations, thereby diminishing otherwise unpalatable business risks. This has accelerated the development of EVs in the car market and ensured that private companies now view EVs and EV infrastructure as profitable in the short term, and not just as a potentially profitable venture in the medium to long term.
So how likely is this to happen?
Across the developed world, nations have set out their ‘ambitious’ targets (although I will leave you to decide how ambitious they actually are) but few have taken sufficient action to achieve these targets. It is still more financially viable for most customers across most of the developed world to buy a fossil fuel powered vehicle and there is a lack of rapid charging points to support those who already own an EV.
That being said, there have been encouraging signs recently: the election of a German government with a focus on sustainability may mean more action is likely. Indeed, Germany’s new coalition has promised to phase out coal power and put 15 million EVs on German roads by 2030.
Across the Atlantic, the Bipartisan Infrastructure Law in the US will make EVs more accessible through reducing their price and ‘building the necessary infrastructure for drivers across America to save money and go the distance.’ There are promising signs in the UK too: all new buildings must have EV charging points and the sale of new petrol and diesel cars will end by 2030.
Whilst it is unlikely that we will see the speed of change seen in Norway in the rest of the developed world, action is being taken to make EVs more affordable and practical to most people. Vehicles using unsustainable fuels are still more viable to the majority of customers. The rest of the developed world is not yet in line with Norway, but we are on the journey there.