The vehicle purchase tax as a climate policy instrument

Abstract

Since 2007, the Norwegian vehicle purchase tax includes a large CO2 emission component. At the same time, generous tax exemptions and privileges are granted to battery electric vehicles. Continued application of the purchase tax instrument may induce large-scale penetration of electric cars into the passenger car stock, thus halving the fleet's fossil fuel consumption and greenhouse gas emissions within two or three decades. The main tangible cost of this low carbon policy is the extra cost of acquiring novel products with currently small economies of scale. This cost difference will decline over time. The main benefits consist in reduced energy consumption and greenhouse gas emissions. We calculate the gross and net tangible cost of the low carbon policy in a long-term perspective, i.e. towards the 2050 horizon. A crucial cost determinant is the speed at which the manufacturing costs of battery and plug-in hybrid electric vehicles will fall. Under moderately optimistic assumptions about impending economies of scale, net tangible costs by 2050 come out in the range €48 to 278 per tonne CO2, depending on the discount rate and on battery replacement costs.

A generic discrete choice model of automobile purchase

“…One notes that already in 2007, there is a marked difference between the two developments, as car buyers in the reference scenario are induced to choose more energy efficient cars with lower CO 2 emissions. This shift has also been observed in reality [16].…”

“…At this level, the model appears to discriminate well between various policy scenarios, as demonstrated by the simulation exercise described in Section 4 above. When fed into a dynamic stockflow cohort model of the car fleet, it becomes a powerful policy support tool [15,16].…”

“…In Norway, a large number of incentives have been implemented over the last 10-12 years, most importantly a steeply CO 2 -graduated vehicle purchase tax. These incite a growing number of car buyers to prefer low and zero emission vehicles [13,16]. In 2015, no less than 17% of all new automobiles registered in Norway were zero emission cars, almost all of them battery electric vehicles (BEVs).…”

Policy mechanisms to accelerate electric vehicle adoption: A qualitative review from the Nordic region

“…Simultaneously, the incentives available do work, as indicated by the sale shares in Norway and Iceland, two countries with heavy purchase tax exemptions, especially when compared to the other Nordic countries that do not have such exemptions, as indicated by Table 1. This is confirmed in the literature, which concludes for Norway that the most effective mechanisms are aimed at the purchase costs [21] and toll roads or access to High Occupancy Vehicle (HOV) lanes [22]. However, not all countries or local authorities have such options, either fiscally or sociotechnically, and the differences in EV adoption rate are not surprising when incorporating the local political, economic, geographic and sociotechnical context for which policies need to be translated.…”

“…A growing number of articles has recently been published studying the policy mechanisms that have been set up in response. Some of these focus on specific measures [21] or countrywide programs [22][23][24] and a select few compare policies across countries [25]. Others generalize across the literature [19,[26][27][28][29].…”