Proposed tax increases for electric cars will increase greenhouse gas emissions

Full toll rates and VAT for electric cars will reduce the profitability of owning electric cars and increase greenhouse gas emissions from passenger cars in Oslo up to 2030.

Photo: Charging electric cars / Shutterstock

This is the main conclusion in a new TØI report, commissioned by the City of Oslo. In the report, researchers have calculated the effects of adopted and proposed tax changes on greenhouse gas emissions from passenger cars in Oslo up to 2030.

As the share of electric cars has increased, the central government and some municipalities have made changes, and plan more, to the tax advantages and other instruments included in electric car policy. But how these changes will affect the phasing in of electric cars and greenhouse gas emissions going forward has been unclear.

Despite the fact that such calculations will always be somewhat uncertain, especially when one has to rely on historical data in a market where the development in both technology and market shares is so great, the calculations in the report show that implemented and proposed changes in electric car benefits will make it less profitable to own and use an electric car compared to an exhaust car. In isolation, this will result in an increase in greenhouse gas emissions from passenger cars in Oslo up to 2030. The emissions will continue to fall, but the decline will be somewhat slower than if these changes had not been made.

Full VAT on new electric cars and full tariff for electric cars in the toll ring are most important

The following effects have been studied in the report:

Effects of tax changes that have been adopted:

  • Removal of VAT exemption for electric cars over NOK 500,000
  • Introduction of weight component in the registration tax for passenger cars
  • Introduction of full re-registration fee for electric cars

Effects of proposed tax changes:

  • Increased tolls for electric cars in the toll ring in Oslo, i.e.
    • (a) increase 50 to 70 per cent tariff for electric cars
    • (b) removal of differentiation between electricity and fossil fuels
  • Introduction of road use tax for electric cars in addition to road tolls
  • Removal of the VAT exemption for electric cars

Effects of increased CO2 tax on fuel

The instruments that are most important seen in isolation are full VAT on new electric cars and full tariff for electric cars in the toll ring. The calculations indicate that full VAT would have increased emissions in 2030 by about 25 per cent, and the full toll rate would have increased emissions by almost 29 per cent. These emission increases are due to more people opting out of electric cars when it becomes more expensive to buy and own. Although total driving is declining somewhat, many households will choose an exhaust car instead.

Should the baseline scenario for greenhouse gas emissions in Oslo be updated?

In connection with Oslo’s work on reducing greenhouse gas emissions, a reference scenario has been prepared for greenhouse gas emissions in Oslo up to 2030. Road traffic is the largest source of greenhouse gas emissions in Oslo, and assumptions related to road traffic emissions may have a major impact on the baseline scenario. The results in the report will form a basis for assessing whether the baseline scenario should be updated. They are also relevant to the work on Oslo Package 3 and the urban growth agreement, the forthcoming National Transport Plan (NTP) and the formulation of tax policy at national level.

The already introduced purchase taxes (VAT of more than 500,000, introduction of one-off tax with weight component and re-registration tax for electric cars) are not included in the baseline scenario. However, if we look at the total effect of selected packages of policy instruments, the calculations indicate that these taxes will result in emissions in 2030 being slightly more than 10 per cent higher than implied by the baseline scenario. If the electric car tariff in the toll ring in 2023 had increased to 70 per cent of the normal tariff in addition to this, emissions relative to the baseline scenario would increase by almost 22 per cent in 2030. Furthermore, a road use tax for electric cars of 0,29 NOK per kilometer, in addition to introduced purchase taxes and a 70 per cent toll rate, would have led to an emission increase of 28 per cent in 2030.

This report has only looked at the effects on greenhouse gas emissions from driving. Changes in policy instruments that make it more expensive to own or use an electric car will also result in a reduction in overall car ownership and car use. There will therefore to some extent be a trade-off between cutting greenhouse gas emissions from car use and reducing car traffic in general.

A summary of the report:

More information about the project:

Text: Hanne Sparre-Enger

Communication manager at the Institute of Transport Research

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