Electric Vehicles, Tax incentives and Emissions: Evidence from Norway

IMF Working Papers, June 8, 2021

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This paper empirically estimates the effects of electric vehicles (EVs) on passenger car emissions to inform the design of policies that encourage EV purchases in Norway.
The study uses exceptionally rich data on the universe of cars and households from Norway, which has a very high share of EVs, thanks to generous tax incentives and other policies.
Main high-level conclusion: household-level emission savings from the purchase of additional EVs are limited, resulting in high implicit abatement costs of Norway’s tax incentives relative to emission savings.
Conditional finding: estimated emission savings are much larger if EVs replace the dirtiest cars.
The authors suggest Norway’s experience may help inform similar policies in other countries as they ramp up their own national climate mitigation strategies.

Household-level emission savings from the purchase of additional EVs are limited.
Implication: Norway’s tax incentives imply high implicit abatement costs relative to emission savings.
Emission savings increase substantially when EVs replace the dirtiest passenger cars.

Policy design should account for the limited household-level emission savings when EVs are added to fleets without displacing the dirtiest vehicles.
Targeting incentives toward replacing the dirtiest cars could substantially raise emission savings per subsidy dollar and reduce implicit abatement costs.
Norway’s policy experience provides lessons for countries scaling up national climate mitigation strategies and EV incentive programs.

Data: universe of cars and households in Norway (described as exceptionally rich).
Subject areas: Environment, Greenhouse gas emissions, Income, National accounts, Tax incentives, Taxes, VAT exemptions.
Keywords: car usage preference, emission savings, Greenhouse gas emissions, Income, passenger car emission, purchased EVs, savings from the purchase, Tax incentives, VAT exemptions.