Too green to be good: the efficiency loss of the Norwegian electric vehicle policy

Norway has the largest share of electric vehicles per capita in the world. This is a result of an extensive government policy providing electric vehicle users with benefits such as tax exemptions, free parking and access to bus lanes. The green policy is not without costs and the aim of this article is to estimate the efficiency loss caused by the Norwegian electric vehicle policy. I apply a partial equilibrium model for the personal transportation market in Oslo and define an efficient policy as a policy that minimises the excess burden of taxation under negative externalities. The estimated reduction in excess burden when taxation on conventional vehicle is fixed ranges between 2.4% and 3.8%. When both taxation on electric and conventional vehicle are optimal, the reduction in excess burden is between 3.4% and 4.9%. The estimates show that the current policy is not economically efficient and suggest that a combination of a reduction in electric vehicle subsidies and an increase in taxation on conventional vehicle yields the most efficient policy.