Saturday 25 April 2015

Norway reviewing future of fuel tax

Norway has started a review of motoring taxation and its support for subsidies for electric vehicles according to Reuters.

It had a target of having 50,000 electric vehicles registered in the country, and has reached that level, with a wide range of incentives including:
- Toll free use of roads;
- Zero charges for public car parks;
- Access to bus lanes;
- Free use of car ferries;
- Free use of public vehicle charge points.

Norway is well known as a major oil producer, but it is also geographically blessed with considerable hydro-electricity, which supplies nearly 99% of its electricity, so it can export the oil and use its own electricity from a source than is a very conventional renewable one (so there are no issues around the use of electricity increasing emissions).

20% of all vehicles sold last year were electric, with Norway alone representing one third of all such vehicles sold in Europe (Norway notably is outside the European Union, but has free trade with the EU through the European Free Trade Agreement).  According to InAutoNews, the subsidy scheme meant that purchasers of the Tesla Model S, a luxury sedan, were getting subsidised. 

The subsidy scheme is one thing.  I tend to think that policymakers need to be very careful not to make programmes to encourage purchases of electric vehicles subsidies to relatively well off individuals and businesses.  There is a case for taking into account the relatively lower environmental impact, but there is little evidence that most such schemes do that.

However, there is little indication of what is behind the review of fuel tax and other motoring taxes.

It's worth remembering that Norway has many toll roads, not just the relatively well known Oslo toll ring (which effectively operates as a congestion charging cordon), but on major highways across the country, with 40 currently listed (full list here).  I addition, it recently became compulsory for almost all heavy vehicles (those over 3.5 tonnes) to have a toll tag account.

Map of Norwegian toll roads from Norwegian Public Roads Administration

So tolls are a well established way of paying for major new highway infrastructure in Norway. However, fuel tax is important as well.  Fuel tax is US$3.87 per gallon (US$1.02 per litre) including a tax on CO2.  However, with such significant increases in the electric fleet, revenue from such tax will be dropping significantly.  Will Norway increase such taxes further (which is likely to particularly harm larger commercial vehicles with fewer viable options to switch to electric vehicles), or replace it with more tolls or a distance based charge?

I suspect the subsidy programme for electric vehicles will be significantly scaled back, bearing in mind Norway is significantly affected by the recent drop in oil prices, affecting state revenues.

However, the future of fuel tax will be more interesting.  Bear in mind that its neighbour Sweden has an influence, as having taxation significantly lower than Sweden will encourage some informal and illegal trade across the border (which itself has low levels of control because both countries have signed up to the Schengen Agreement).  So there may be limits as to what can be done quickly. However, with a culture used to tolling, is it too much to think that maybe Norway will be the first country in Europe to start a transition away from fuel tax and towards network wide road charging?