The Norwegian CO2-differentiated motor vehicle registration tax, an extended Cost-Benefit Analysis

Gunnar Eskeland, Shiyu Yan

Research output: Working paper/Preprint Working paperResearchpeer-review

Abstract

In addition to a longstanding CO2 component in fuel taxes, Norway has used two main policy instruments to decarbonise its car fleet. A CO2 differentiated registration tax gives strong and continuous incentives to buy cars with lower registered CO2 intensity (or higher fuel efficiency). Moreover, generous tax incentives, including registration tax and VAT exemptions, are applied to zero-emission cars, and have given Norway the highest electric vehicle sales in the world. This paper analyses effects of the two instruments (the vehicle registration tax and tax exemption) using an excellent and detailed data set. These instruments are powerful and costly, applied at levels ten times EU ETS quota prices or more. In addition, user costs are influenced by fuel taxes and tolls, and lower urban tolls apply to zero-emission vehicles. The paper estimates an elasticity of -0.8, meaning that a 10% increase in the CO2 intensity price reduces the emission intensity of the representative car by 8%. It is estimated that the registration tax also delivers improvements in other externalities, the largest effects being air pollution (in percent) and congestion (in monetary value). Alongside the reforms, overall tax revenues from cars and fuels have been reduced considerably, mostly due to declining fuel tax proceeds and the generous tax exemptions for zero-emission vehicles. Besides, vehicle taxation has become more regressive, since urban and suburban households have benefited most from low- and zero-emission vehicles, and these on average have higher incomes. These two effects can be repaired, if desirable, most simply by streamlining the treatment of zero-emission vehicles to be technology neutral, and charging VAT from all cars.
Original languageEnglish
PublisherOECD
Publication statusPublished - 2021

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