Too green to be good: the efficiency loss of the Norwegian electric vehicle policy

ABSTRACT

Norway has the largest share of electric vehicles per capita in the world. This is a result of an extensive government policy providing electric vehicle users with benefits such as tax exemptions, free parking and access to bus lanes. The green policy is not without costs and the aim of this article is to estimate the efficiency loss caused by the Norwegian electric vehicle policy. I apply a partial equilibrium model for the personal transportation market in Oslo and define an efficient policy as a policy that minimises the excess burden of taxation under negative externalities. The estimated reduction in excess burden when taxation on conventional vehicle is fixed ranges between 2.4% and 3.8%. When both taxation on electric and conventional vehicle are optimal, the reduction in excess burden is between 3.4% and 4.9%. The estimates show that the current policy is not economically efficient and suggest that a combination of a reduction in electric vehicle subsidies and an increase in taxation on conventional vehicle yields the most efficient policy.

KEYWORDS:

• Transportation
• economic efficiency
• optimal taxation
• environmental taxation
• policy decision-making

Acknowledgments

I thank Dr Eirik Romstad for support and useful comments during the work on this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. The initial market shares for public transportation are from Ruter's yearly report (2016) and data on private vehicle transportation are provided by Fjellinjen AS for the year 2015. Ruter is a company covering public transportation in Oslo and Akershus in Norway. Fjellinjen AS is the toll gates company located in Oslo.

2. For a more detailed monetary quantification, see Aasness and Odeck (2015).

3. The average vehicle is defined as a weighted average of the most purchased diesel and gasoline vehicle. The weights are their respective shares of the vehicle fleet in the region Oslo and Akershus.

4. 78.9% decrease in electric vehicle subsidies is equivalent to an 7.10 € increase in taxation.

5. This number is provided by the toll gate company Fjellinjen AS.