Combined Approaches to Electric Vehicle Adoption:  Norway

Overview

The transport sector is the second largest source of global emissions, accounting for around one-fifth of CO2 in 2020, behind only the power sector. To address this, governments can support electric vehicle (EV) adoption through mandates to phase out internal combustion engine (ICE) vehicle sales, subsidies to make EVs more affordable, and other measures.

Norway has committed to banning new sales of ICE passenger cars, light commercial vehicles and buses by 2025. It has set a soft target for capping new large truck ICE vehicle sales at 50% by 2030. The government has long had supportive policies that have cut EV costs for consumers and incentivized adoption. This has included exemptions from the country’s value added tax and import duties. The country also supports EVs through lower registration taxes than for ICEs, through road toll reductions, and by offering free parking and access to bus lanes. While some of these incentives are winding down, the combination of policies has turbocharged Norway’s EV market.

Impact

Coupled with rapid EV price declines, Norway’s policies have enabled EV sales to grow by an average 30% per year 2017-2021. Today, the country is unquestionably a global leader in electrified transport. EVs accounted for a remarkable 87% of the country’s new passenger vehicle sales in 2021.

Such progress suggests the country’s goal of a total ICE phase out by 2025 is within reach. To ensure it meets the goal, Norway is offering housing associations grants covering 20-50% of charging infrastructure to expand plug availability. EU regulations have also supported market growth. The European Commission has set CO2 emissions limits for automakers on vehicle sales, which have ratcheted down. Since 2020, the standards have required new passenger cars to emit an average 95gCO2/km, down from 130gCO2/km in 2012-19. The change has spurred automakers to ramp EV sales to reach the targets or face fines. EV sales in Europe jumped by 149% in 2020 as automakers strived to reach the targets. The standards apply across the European Economic Area, including Norway.

Opportunity

Norway’s approach has been to offer preferential tax rates or exemptions that ensure consumers pay less for EVs than they do for ICE vehicles. This differs from flat-rate tax credits or other subsidies offered by other nations, which may or may not close current price gaps. In addition, tax policies can prove less costly to governments when tied to vehicle emissions rates and weights as Norway has done.

By setting an ambitious national target, complementing it with supportive fiscal and regulatory policies to assist consumer adoption, Norway has boosted EV uptake while limiting government and consumer costs. As a wealthy, oil-producing state, Norway has exceptional financial resources to leverage in support of its policy goals. Nonetheless, the country’s coordinated support for EVs highlights how ambitious, yet realistic, phase-out targets aligned with a slew of supportive policies can accelerate transition of a light-duty vehicle fleet.

Source

BloombergNEF

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