Electric mobility – What can Nepal learn from Norway?

Figure 1: EVs

I can think of at least four benefits to promoting electric mobility (e-mobility) in Nepal. Firstly, electric vehicles (EVs) will help reduce vehicular emissions, thereby significantly improving ambient air quality, especially in cities like Kathmandu. Secondly, switching vehicle fuel from petroleum to electricity will save Nepal a lot of foreign currency spending because petroleum products constitute about 15% of Nepal’s import bill. Thirdly, EVs can use Nepal’s off-peak and wet season electricity surplus. Fourthly, calculations indicate that the life cycle cost of owning and operating an electric vehicle is lower than that for an internal combustion engine (ICE) vehicle.

Nepal’s e-mobility journey began in 1979, with Kathmandu’s electric trolley bus system built with Chinese assistance. However, after 30 years of operation, it permanently shut down in 2009 because of political and bureaucratic mismanagement. In 1995, the locally manufactured 12-seater battery-powered electrical three-wheelers (Safa tempos) replaced the highly polluting diesel-operated three-wheelers – the “Vikram tempos”. Currently, about 700 Safa tempos are still in operation. Electric four-wheeled vehicles came to Nepal in the early 2000s. Currently, about 1,200 of about 15,000 automobiles sold annually in Nepal are electric. There are also four public electric buses operating in Kathmandu.

Nepal’s most tangible policy strategy for promoting electric vehicles is in Nepal’s Nationally Determined Contribution of 2020, which has a 2030 target of 90% private and 60% public vehicle sales to be electric. There are also a few policy instruments in place. There is reduced customs duty and road tax and excise duty exemption for EVs. However, in 2020 the government regressively increased customs duty, levied excise duty, and increased road tax for EVs. Another recent policy instrument is a reduced electricity tariff for EV charging stations. Nepal Electricity Authority is also in the process of installing 50 charging stations all over Nepal. However, there is an acknowledgment that more needs to be done to meet the national aspirations for electric mobility so that we can fully realize its benefits.

In this context, Norway is widely acknowledged as one of the world leaders in promoting electric mobility. In 2020, about 54% of new cars sold were electric. Therefore, can Nepal learn from Norway’s experience with EVs? Nepal and Norway have many aspects that set them apart. However, in my experience, many aspects make them similar. The predominance of hydropower in the electricity mix, and a mountainous topography are two such similarities.

It is widely acknowledged that the use of electric vehicles in Norway has taken off primarily because of government policies. The Norwegian Transport Policy, revised every four years through wide stakeholder participation, defines Norway’s politically agreed transport roadmap. Fiscal incentives have been the most important driver of EV uptake in Norway. Norway’s annual vehicle tax has a carbon dioxide (CO2) component. This means that the more a vehicle emits CO2, the more its tax. Furthermore, these taxes have generally risen over the years. The consequence is the tax for ICE cars has also risen and thus the tax exemption for zero-emission vehicles consequently increases. Another fiscal incentive is the 25% value-added tax exemption for EVs. In addition, Norway has also introduced other incentives. These include exemption from toll charges, EV access to bus lanes, free or reduced parking fees for EV, and easily recognizable special EV license plates. Norway has also focused on expanding the charging network, which is recognized as being very crucial for expediting EV uptake. In 2020, there were over 16,000 charging stations in Norway, including 3,300 fast-charging units. The government plans to install a minimum of two fast-charging points per 50 km on all major roads. Finally, Norway is investing in strengthening its electricity distribution infrastructure to support, among other uses, the rapidly expanding electric vehicle charging infrastructure. It is also promoting smart meters, which combined with differential electricity tariffs, can help reduce peak time distribution system overload.

So, why have Norway’s public policies been so successful? Firstly, its EV policy mix is considered to be very stable. Many of the incentives have been implemented since 2000 with adequate funding. At the same time, the features of policy instruments have been continuously adjusted based on learnings and feedback. Therefore, the Norwegian EV policy mix has been able to balance stability and flexibility fairly well. Secondly, Norway’s EV policy mix is coherent and consistent. Norway has a high gasoline tax but low taxes on electricity and electrical vehicles. The CO2-differentiated tax instrument is a “creative destroyer” because it simultaneously supports zero-emission vehicles and penalizes carbon-emitting cars. Thirdly, there is policy integration among the national and sub-national governments. The national government has made EVs cheaper to purchase and the sub-national governments have made it easier and more affordable to use them.

Despite its successes, there are some criticisms of Norway’s EV policies. One of the current debates is whether the Norwegian EV market has become mature enough for a gradual phase-out of incentives. The EV association and environmental organizations argue that it is still too soon for the phase-out, whereas others argue that the incentives are increasing private car ownership, which goes against  Norway’s climate goals. Furthermore, there is thinking that phasing out incentives will be challenging because removing them can cause huge market disturbances and may adversely impact EV’s positive perception. There is also a call for Norway to promote more public transport, biking, or walking rather than promoting just EVs, which would not help reduce congestion. Oslo’s Vice-Mayor has said that the ultimate goal is to make personal cars “an endangered species”, by focusing on public transport and more bicycle lanes. Thirdly, since the progressive EV tax exemptions seem to favour larger than smaller cars, the question is being asked whether Norway’s EV policy is serving only the rich.

Therefore, coming back to my earlier, question: What can Nepal learn from Norway’s experience?

Some of the future steps that need to be taken include the government formulating an integrated, realistic, stable, and coherent policy strategy that includes specific targets and timelines, which is then operationalized through appropriate policy instruments.

Since the upfront cost of EVs is generally higher than that of ICE vehicles, there will also be a need for financial institutions to formulate and implement innovative financing instruments. Innovative business models regarding the sale of EVs and installation and operation of charging stations will help promote EVs. In the new federal structure of governance in Nepal, a partnership between federal, provincial, and as importantly, local governments and the private sector to promote public electric mobility will also be very important. Finally, Nepal will have to aggressively implement its newly formulated National Distribution Plan to augment the existing electricity distribution system, widely install smart meters. The government will need to further refine the electricity tariff to make electric vehicle charging more attractive. The Norwegian experience also suggests that zero-emission e-mobility will only take off when households, businesses, and charging stations can be assured of adequate, affordable, and reliable electricity supply.

[1]  This blog has also drawn on an essay that the author wrote for his MSc in Energy Policy course.