BEV sales accelerated in the final months of 2020, hitting its highest level for any single month in December, with a 66.7% share of the car market.
Volkswagen’s Audi brand topped the 2020 leaderboard with its e-tron sports utility and sportback vehicles as the most sold new passenger cars in Norway last year, while Tesla’s mid-sized Model 3, the 2019 winner, was relegated to second place.
Electric vehicle sales are set to continue to soar in 2021, industry analysts and car distributors said, as more models are brought to the market.
“Our preliminary forecast is for electric cars to surpass 65% of the market in 2021,” said Christina Bu who heads the Norwegian EV Association, an interest group. “If we manage that, the goal of selling only zero-emission cars in 2025 will be within reach.”
Tesla’s mid-sized sports utility vehicle, the Model Y, is set to reach the Norwegian market this year, as are the first electric SUVs from Ford, BMW and Volkswagen.
By contrast, cars with diesel-only engines have tumbled from a peak of 75.7% of the overall Norwegian market in 2011 to just 8.6% last year.
New car sales in the country last year were 141,412, of which 76,789 were fully electric.
While the electric market share will keep rising, there is uncertainty around how many cars producers will allocate to Norway as European demand is increasing, said Harald Frigstad, chief executive at Norwegian car importer Bertel O. Steen.
The seller of Daimler’s Mercedes-Benz as well as the Kia, Peugeot, Opel, Citroen, DS and Smart brands, predicted around 70% of its sales would be of fully electric models in 2021.
According to the Reuters article, “Electric cars rise to record 54% market share in Norway in 2020,” Norwegian government exempted electric vehicles (EVs) from taxes imposed on fossil-fueled vehicles. This event can be examined through market failure of positive externality of consumption and key concept of sustainability. While EVs are merit goods, their consumption can generate a positive effect on a third party: society.
The graph above shows that the marginal social benefit (MSB) is greater than marginal private benefit (MPB) This happens because society benefits more than individuals through consumption of merit goods like EVs. Also, marginal private cost tax (MPCtax) is greater than marginal social cost (MSC). However, MPCtax shows that government taxes EVs, something they don't usually do for merit goods. They might have done this because of indifference about the benefits of EV consumption. From government’s perspective, the social cost might be higher, meaning that MPCtax acts as MSC temporarily. Point A, where MSB = MPCtax, is temporary social optimum point before government considers the benefits of EV consumption, showing Qtax (quantity actually being consumed) < Qopt (quantity society desires): underconsumption. This happens because of consumer ignorance about the positive effects of EVs. Underconsumption of EVs results in potential welfare gain because of external benefits: reduction of carbon emission. Point B, where MPCtax= MPB, is different from point A, showing underallocation caused by underconsumption of EVs. At this point, Popt (price society desires) > Ptax (price actually being consumed), shows that society encourages people to consume EVs. This happens because if Popt > Ptax , society can expect Qtax to increase towards Qopt due to the law of supply. The government wants to increase the quantity of EVs in order to achieve environmental sustainability
As EVs' market share increased to 54% in 2020, Norwegian government began paying attention, “seeking to become the first nation to end the sale of petrol and diesel cars by 2025.’’ This motivated them toward point D, the actual social optimum point. According to the article, to solve underconsumption, they stopped taxing EVs. This tax exemption results in the MPCtax shifting downward to MSC, decreasing the price of EVs due to lower production costs. This then increases the quantity of EVs due to the law of demand. Thus, as the Ptax decreases to Pk, Qtax increases to Qk toward Qopt, which shifts point B to C; 54% of EVs’ share will increase to 65% in 2021. However, there are still potential welfare gains as well as misallocation in markets because, although consumption increased, the social optimum point changed from A to D, which still causes underconsumption. In Norway, this tax exemption seeks to achieve the “goal of selling only zero-emission cars in 2025.'' This means a cleaner environment for future generations, eventually achieving environmental sustainability. Thus, sustainability is the most appropriate concept in this article.
In the short run, tax exemption is a disadvantage because it decreases revenue.. This results in a tighter budget, which causes opportunity costs, limiting socio-economic benefits like welfare or infrastructure. For example, providing financial relief for emergencies such as the COVID-19 pandemic, limits revenue to invest elsewhere. Thus, continuous loss of revenue will prevent society from achieving economic sustainability along with UN SDGs: decent work and economic growth (8) and industry, innovation, and infrastructure (9). However, in the long run, the policy provides advantages. Tax exemption motivates consumers to buy EV at a lower cost. Due to the law of demand, EV consumption will increase. Selling only zero-emission cars by 2025 will help decrease air pollution and achieve environmental sustainability and UN SDGs (3), (13), and (15).
As an alternative to this policy, the government can educate consumers about benefits of using EVs. The limitations caused by tax exemption might make it unrealistic to achieve 100% of EV’s market share in 2025 as the article predicted. For these reasons, although the price is lower, it is uncertain whether everyone will switch to EVs and it is hard to calculate the value of external benefit. In addition, the second diagram shows that quantity can reach Qk only with tax exemption. However, through education, MPB can increase to MSC. This is reasonable because indifference causes underconsumption. The strength of this policy is that it is simpler than subsidies or legislation because educational videos and advertisements are easy to make and publish. On the other hand, its effectiveness is limited if people ignore the benefit of . Also, EVs are difficult to afford for low income people. Although education may not be able to have a significant impact, this can support the limitation of tax exemption to achieve the goal.
Overall, tax exemption is costly to consumers and decreases government revenue, and cannot solve the problem. Therefore, government should educate people while exempting tax to give positive effects on society, achieving both sustainability and UN SDGs.
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