Generous tax-breaks accelerate electric car adoption in Norway

The Norwegian island of Finnoey has the highest density of electric cars in the world.

The reason? They are exempt from the $6,000-a-year toll charges for the tunnel to the mainland.

There has been a surge in sales of fully electric cars such as Teslas and Nissan Leafs since the tunnel opened in 2009, and they now account for one in five cars on Finnoey, compared with less than 1 in 100 globally.

New registrations

Twenty-nine per cent of all new car registrations in Norway were fully electric or plug-in hybrids last year, according to the International Energy Agency, far ahead of the Netherlands in second on 6.4 per cent and Sweden in third on 3.4.

China had almost 1.5 per cent and the United States less than one. State subsidies support sales of electric cars around the world, and Norway has the most electric cars per capita, thanks to the most generous handouts.

It offers nationwide tax breaks for users of electric cars, worth tens of thousands of dollars, plus various local incentives such as exemptions from road tolls and parking fees.

“Economic incentives work, especially if they are very, very, very strong as in Finnoey,” said former Norwegian central bank governor Svein Gjedrem, who grew up on the western island chain of 3,250 people, which is famous for its fish farms and tomatoes.

A reliance on state handouts complicates efforts in nations such as Britain and France to phase out combustion engines in favour of battery-powered vehicles, which are far costlier, have limited ranges and often have long charging times. It means the technology will have to become significantly cheaper if those governments are to meet pledges to ban sales of petrol and diesel cars from 2040, without having to hand out crippling levels of subsidies to millions of buyers.

A tale of two contrasting Norwegian municipalities – Finnoey and neighbouring Hjelmeland on the mainland – starkly illustrates the power of financial incentives on consumer behaviour.

A Finnoey resident driving to work in nearby oil hub Stavanger with an electric car can save 40,000-50,000 crowns ($5,500-$6,500) a year in tunnel tolls compared with drivers of fossil-fuelled cars. Hjelmeland, by contrast, bucks the Norwegian trend by offering no local perks at all for battery-powered cars.

“It's all about the economics, not about ideology,” Wictor Juul, the head of administration for the Hjelmeland municipality, said of the contrasting ownership rates.

Withdrawal symptoms

Norway is among the world’s richest countries because of its oil and gas exports, yet even there electric car incentives are being curbed because of the strain on public finances and a faster-than-expected adoption of battery-powered cars.

For example, it has just scrapped nationwide directives that parking, transport by state-owned ferries and road tolls should be free for electric vehicles, instead leaving it to local authorities’ discretion. It is also reviewing tax breaks for the most expensive luxury electric cars.

So far the reversals have had no apparent impact on sales.

“I’m not too worried,” said Christina Bu, the head of the Norwegian Electric Vehicle Association, because other benefits such as an exemption from value-added tax are staying in place.

Sales of Nissan Leafs in the US state of Georgia, for instance, plunged after authorities revoked a $5,000 tax break in 2015.

Electric car imports to Denmark fell sharply last year, bucking a European trend after Copenhagen cut subsidies. Sales of Teslas fell to 176 from 2,738 the year before.

The Norwegian finance ministry says basic tax breaks totalled about a cumulative 12 billion crowns by the end of 2016. There are now about 140,000 fully electric cars on the road.

Britain and France, the only two countries to announce deadlines for phasing out combustion engines, also offer generous subsidies to electric car buyers.

Buyers in Britain get a grant of up to 35 per cent of the purchase price, while in France someone selling a diesel car and buying electric receives thousands of euros in benefits.

Norway’s Environment Minister Vidar Helgesen, part of a minority right-wing government that won re-election on September 11, acknowledged that the country’s subsidies model was expensive.

But he predicted advances in the technology would mean electric cars would be competitive in price with combustion engine cars in the early 2020s.