Want to boost EV sales in the US? Look to China and Norway
EV deployment is rising in the U.S., but faces barriers. By mirroring strategies of Norway and China, the U.S. could start achieving carbon reduction goals while boosting the economy.
The following is a viewpoint from Anastasia Palivos, Acting Commissioner of the Illinois Commerce Commission, Emily Brumit and Ritta Merza, legal and policy advisors to the acting commissioner, and Shandice Sluch, a third year law student at the University of Notre Dame.
Countries around the world have realized the detrimental effects of carbon emissions. To reduce those emissions, they have promoted the use of electric vehicles via policy, education and incentives. This article features a comparative analysis of the United States, Norway and China, and their efforts to encourage electric vehicle deployment.
Part I: EV deployment in Norway and China
Many countries are participating in the steady transition from internal combustion engines (ICE) to electric vehicles (EV).
Countries such as Norway and China have had extraordinary growth in their efforts to reduce carbon emissions created by ICEs. There are countries, like the United States, whose efforts to reduce carbon emissions are apparent, but not as rigorous as necessary to meet established emissions reduction goals.
What explains the gap between countries leading EV sales and deployment and those that are lagging behind? The answer lies in the respective government's ability to educate the public, incentivize consumers and meet their needs.
A. Norway, a world leader in EVs
Norway is a long-time champion of EVs. Due to the continuous efforts to increase EV adoption, the progressive country has the highest number of EVs per capita in the world. In fact, one out of every five new cars sold is electric.
The Norwegian government began promoting the use of EVs in 1989. Shortly after the initial promotion, the government offered incentives and programs aimed at increasing EV sales. By the mid-nineties, Norway cut the annual registration tax and exempted all EVs from road tolls, among other monetary and non-monetary benefits.
This success story continued in 2012 when the government published the Climate Policy Statement. It expresses a desire to improve air quality, drive up the use of renewable electricity and reduce carbon emissions from the transportation sector by 2050.
To achieve this goal, the Norwegian government set a short-term goal of 100,000 EVs on the road by 2020. With more than 121,000 EVs on the road, Norway has surpassed this goal with two years to spare.
B. Government incentives for EV deployment in Norway
In 2001, the country allowed EV owners to bypass the 24% value added tax (VAT) to incentivize citizens to purchase EVs. Naturally, after the VAT waiver was implemented, sales rose.
This incentive was a crucial move to encourage citizens to drive EVs rather than petrol vehicles. The VAT incentive created a situation where consumers do not need to be devoted environmentalist to buy EVs — it just makes economic sense.
However, it was extremely costly for the government. Officials predict a loss of $3 billion in tax revenues. The government is looking to phase out incentives and increase taxes in other arenas to recoup costs.
A BMW spokesman at Munich HQ said, "We view Norway as a role model for how electric mobility can be promoted through smart incentives. The situation would probably be different if those incentives were dropped."
As the world's largest emitter of carbon, China is implementing environmental initiatives to reduce catastrophic pollution.
The country is aggressively promoting EVs through research and investments in EV manufacturing companies. With the enactment of appealing subsidies and tight government regulations, their efforts are proving successful.
In 2011, only 8,159 EVs were sold in China. In 2015, that number jumped to 331,092. Currently, China has the largest number of EVs on the road. At this rate, China could make up more than 40% of EV sales by 2040.
In addition to increasing EV sales, China also leads the world in EV production. According to JPMorgan Chase & Co., the country will account for 59% of global sales by 2020 and 55% by 2025.
D. Government incentives for automakers in China
The New Energy Vehicle Mandate (NEV) is set to accomplish China's goal by shifting the financial responsibilities of EVs to the auto industry.
Modeled after California's Zero Emissions Vehicle Mandate, the NEV Mandate outlines a goal to completely phase out traditional ICEs, promote the production of new EVs and provide additional compliance regulations for existing laws regarding fuel consumption.
These targets are for EV credits, not sales. It's essentially a points system; car manufacturers will face a credit surplus or deficit depending on whether they meet sales targets.
Since the introduction of the NEV, the Chinese EV market has expanded by 72%. This incredible growth in EV sales has created an EV market that is larger than the United States and Europe combined.
Both Norway and China demonstrate that consistent government support for EV sales can create demand, and should serve as an example to the United States, where carbon pollution is high and EV sales are still relatively low.
Part II: Steps to increase EV adoption in the United States
In 2018, EV sales in the United States were at around 1% of overall car sales, with an adoption rate of less than 1%. However, if California were its own country, it would rank in the top 10 countries that are pushing EV sales. In fact, California has a higher percentage of EV sales than China, the star student of EV adoption.
In order for the rest of the United States to catch up with California and continue to compete with countries like Norway and China, we must consider the interests of the government, its citizens, and how to best serve both. Potential strategies include adopting incentives to encourage EV deployment, such as educating the public on financial and economic benefits of EVs; implementing incentives for consumers and EV manufacturers; and developing sufficient charging infrastructure.
1. Educating citizens on the benefits of EVs
Most Americans still believe the high up-front cost outweighs the benefits EVs provide. In order to encourage drivers to switch to EVs, it is critical to educate the public on the advantages of driving electric, so that drivers become more open to and interested in the modern vehicle.
In the early stages of EV promotion, Norway implemented a marketing initiative to increase awareness. The campaign focused on informing the public about the low operational costs of EVs, compared to the high gasoline and maintenance prices required to run an ICE vehicle.
Many states in the United States have already begun similar initiatives. For example, in 2017, Oregon opened the first EV showroom in Portland with interactive displays, giving patrons the option to learn about EVs prior to purchase. Attendees can also test drive the vehicles. This opportunity will help potential drivers familiarize themselves with the cars, learn about their benefits and realize that they are a viable option for anyone.
2. Increasing consumer incentives
One of the simplest ways the United States can encourage nationwide EV adoption is to incentivize the purchase of EVs through monetary credits and other non-monetary incentives.
Monetary incentives in the United States are generally in the form of federal tax credits. The U.S. has already begun this strategy by awarding up to $7,500 to the first 200,000 buyers of EVs for each EV manufacturer. The amount of tax credit received depends on the size of the vehicle and its battery capacity.
However, as manufacturers like Tesla reach their cap, the question becomes: What will happen to sales once the credit expires? Pending congressional legislation, H.R. 6274, seeks to resolve this issue.
While one tax incentive is slowly coming to an end, the U.S. should continue to find ways to incentivize EV sales. In regard to tax credits, governments have wide discretion to be creative. China, for example, applied a different variation of tax credit, which exempted EV buyers from the initial purchase tax.
Monetary incentives could also come in the form of exemptions from road tolls, a strategy Norway implemented. The United States has similar incentives; Los Angeles allows EV drivers to use toll lanes for free. Beginning in late fall 2018, EV drivers will receive a 15% discount on toll fees.
The United States can also support EV adoption by implementing non-monetary incentives. Several garages and shopping malls across the United States already offer preferential parking to EV owners. Another perk could include access to rideshare lanes for single-occupant EVs.
While these incentives can encourage more consumers to adopt EVs, another challenge lies in meeting consumer needs. For example, in Norway, EVs are attractive because gas prices range from $7.00 to $10.00 per gallon.
Conversely, in the United States, the average cost of gasoline is $2.60 per gallon. When gas prices are this low, drivers are less likely to make the switch to EVs, as there is less financial incentive. Because current gas prices are low in the United States, creating alternative monetary incentives for drivers to switch from ICEs to EVs is key to increased deployment.
3. Incentives for auto manufacturers
Market demand and competition should be sufficient to provide car manufacturers with an incentive to continue developing EV models that fit consumer needs. However, the United States can help manufacturers push sales by providing tax incentives and implement policies and regulations that encourage zero-emission driving.
Manufacturers should consider the distance consumers travel during the week, as well as on the weekend, to determine what range best meets their needs. While the range of many EVs meet consumers' relatively short traveling needs during the week, they do not meet expectations for long weekend travels.
Another consideration for car manufacturers in the United States is engineering different models of cars. Manufacturers like Chevrolet and Tesla, among several others, have engineered sedans that have competitive drive ranges. However, consumers still require more options.
In the United States, pickup trucks are one of the most popular vehicles on the road. However, no EV pickup truck currently exists to compete on the market.
In order to appeal to a broader range of consumers, it is important to diversify the models of EVs available on the market and incentivize manufacturers to produce.
D. Developing sufficient charging infrastructure
Yet another challenge is the lack of sufficient EV charging infrastructure across the United States. Even if consumers are willing to switch to EVs, and enough EVs are produced to meet consumer demand, our current charging infrastructure will not be sufficient to meet consumer demand.
According to Forbes, the United States has 16,000 public charging stations, while China has over 200,000 charging points, making it the largest EV charging network in the world.
In China, most charging infrastructure is owned by the state-owned utility company. This specific model of charging infrastructure cannot be implemented in many other countries where utilities are independent entities.
In the United States, there is an additional level of complication, as electric utilities operate differently in each state. Thus, the question of how to encourage further EV charging infrastructure has to be addressed state-by-state.
In California, for example, Governor Jerry Brown signed Public Utilities Code 740.12 into law in 2017. It was intended to promote the development of charging infrastructure by giving consumers more liberty to choose their desired charging infrastructure instead of dictating to consumers which charging infrastructure they have to install.
By giving consumers this choice, the state was able to attract private capital investment, while simultaneously creating more jobs. This approach is unique to California and might not apply in other states with different utility structures.
Developing and expanding EV charging infrastructure will not only allow EV drivers to charge their cars more conveniently during local commutes, it will also broaden the EV driving range across borders, making interstate travel easier.
If the U.S. wants to be at the forefront of the global EV industry, compete with other nations across the world and reduce carbon emissions, it is important to develop policies that encourage and incentivize EV deployment.
It is clear that EVs are not simply a phase, nor are they only for the environmentalist. EVs have myriad financial benefits for manufacturers, consumers and the economy.
Norway and China are exemplary in the transportation sector, and have the economic statistics to prove it. Their success is derived from government incentives for both auto manufacturers and consumers, marketing and education for consumer support, and build out of EV charging infrastructure.
While the United States has certainly begun the EV conversation and is steering toward increased deployment, there are still barriers to increased sales and adoption, which can be overcome by considering key policy changes and developments. By mirroring strategies of countries like Norway and China, the United States could begin to incrementally achieve carbon reduction goals while also boosting the economy.