Norway’s Policies Lead to Highest European EV Adoption Rates

Norway is the leader among European countries for EV adoption, with nearly one in three vehicles sold in 2018 being zero emission. Compared to other countries, like the US’s 2% of vehicle sales being PEVs, Norway’s EV adoption would seem implausible if not for its significant government support for the technology. 

Conventional Vehicle Bans and Tax Exemptions

By 2025, all new passenger vehicles sold in Norway will be zero-emissions vehicles. The ban on conventional internal combustion engine (ICE) vehicles, announced in 2016, is the most aggressive countrywide ban to date. Like most announced plans for ICE bans, there is no binding law or regulatory language yet surrounding the law. However, given the high adoption rates in Norway over the past 2 years, it seems probable that the country could reach this goal. 

Unlike the US, France, and Germany, Norway’s EV success is not attributed to a purchase subsidy or grant. Instead, those who purchase BEVs pay no import tax on their vehicle, they pay a lower annual road tax, and are exempt from the value-added tax (VAT) on the purchase. The taxes levied on vehicles and the exemptions BEVs currently hold are outlined as follows:

• Norway levies an import tax on cars that can reach €10,000 ($11,338) or more depending on the vehicle’s CO2 emissions. BEVs are exempt from this tax and PHEV owners pay a reduced rate.
  

• The annual road tax for non-BEV drivers is ~€365 (~$414), but BEV owners pay only ~€50 (~$57).
  

• BEV owners are exempt from paying the VAT of 25% on the purchase or lease of the vehicle.
  

BEVs are also exempt from ferry and toll charges, have access to bus lanes in most cities, and receive free municipal parking. These added incentives certainly save BEV owners money, but the tax reductions and exemptions are the largely to blame for Norway’s EV success.

Successful Incentives

The Norwegian EV success is driven by the per vehicle value of the subsidization scheme and its relative simplicity. Not only does Norway’s incentive make PEVs cheaper than most conventional vehicles, compared to the US it is straightforward. In the US, incentives vary by vehicle characteristics and the income of the vehicle purchaser.

An effective PEV incentive accelerates the virtuous cycle of market development, wherein the initial PEV population drives awareness and infrastructure development that supports the following PEV population. The stronger and simpler the incentive, the stronger the market response and the sooner the government may begin to draw down subsidization schemes. Ultimately, the incentives for PEVs cost a government money, so their applications need to be in the most cost-effective manner—for Norway, tax reductions most effectively reduce the purchase price of a PEV, while in other markets a purchase subsidy may make the most economic sense. Governments with ICE ban targets—or fuel efficiency and/or GHG standards—should scrutinize existing subsidization schemes with this frame of mind.