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Mixed Outlook For Electric Cars

They cut carbon emissions massively, but they also cost a bundle. So the success of electric cars will be up to governments' willingness to pay for them. Norway's experience exemplifies both the potential and the problem.

Psssst – want to avoid 16,000 EUR in taxes and fees on your next car purchase? Not just that, you'll drive at no cost in the bus/taxi lane, so you can sail past all the other motorists stuck in traffic. Toll roads, ferries, congestion fees, public parking spaces – for you, no charge. And here's the kicker: you can refuel for free. Given that list of perks, and the alternative of paying nearly 2 EUR per litre (about 7.5 EUR per gallon) of gasoline, perhaps the only surprise is that Norwegian sales of electric cars haven't risen faster and further. Even in one of the world's wealthiest countries, consumers still like a good deal. So they have turned out in force to buy electric cars – 50,000 over the past half-decade. Of all cars in Norway this is only 2 percent, but of new car sales so far in 2015 it is 20 percent, by far highest in the world.

Behind the giveaways is a simple aim: fighting climate change. Norwegian electrics emit much less global-warming carbon than conventional cars. So much so, says the Oslo-based environmental think-tank, Bellona Foundation, that electric vehicles are central to Norway's "objective of achieving a carbon-neutral transport sector by 2030."

With most countries heading in the same direction (albeit more slowly), the world is asking: should we follow the Norwegians?

Electrification to Meet Carbon Targets

One answer is that there might not be much choice. China, Japan, Europe and the USA – which together account for three-quarters of new car sales – all aim to reduce carbon dramatically over the coming 5-10 years. By 2020, the EU plans to drop from today's average of 130 grams carbon dioxide per kilometre driven to 95 grams, while China and Japan are cutting from 167 to 117 and 125 to 105. The USA is shooting for 93 grams, down from 152, but with a deadline of 2025. Norway is most ambitious of all, targeting 85 grams by 2020, down from 2015's level of about 120 grams. The goals vary a bit, but in all cases they are challenging the technical limits of gasoline and diesel engines, and there isn't enough low-carbon biofuel around to close the gap. Electrics, which can have tank-to-wheel carbon footprints of near zero, are therefore unavoidable. This was the view captured by consultancy AEA-Ricardo, which surveyed forecasts of European electric-vehicle sales made by 12 different organisations. Their consensus clusters around 10 percent market share in 2020, rising to 20-40 percent by 2025, well above today's level of under 1 percent. Not only would electrics growth whack down carbon, notes the International Council on Clean Transportation, it also would axe the main contributors to the urban affliction of smog, pollutants such as nitrogen oxides, particles and hydrocarbons.

Could Electrify Economies

And it gets even better, says a 2013 study "Fuelling Europe's Future", from AEA-Ricardo with other consultants and academics. While electric cars are more expensive to buy, European electricity to run them is not. With a 50+ percent penetration of electrics by 2030, they reckon that Euro consumers would annually spend an extra 22-45 billion EUR to buy cars, yet avoid a countervailing 59-80 billion EUR in fossil-fuel bills. The saving of some 40 billion EUR, rather than being spent to buy and process mostly-imported oil, can be ploughed back into electric cars. If that is done in Europe, the analysts continue, the net effect (after employment losses in fuel refining and distribution) would be creation of some 750,000 jobs, most of them high-wage, high-skill. Migrating to electricity could also help Europe modernise its power grid, argues a 2014 study from consultancy McKinsey, entitled "Electric vehicles in Europe: gearing up for a new phase?" Put simplistically, cars could be charged when power plants traditionally are underutilised (nights and mornings), effectively increasing generating capacity without adding much in cost.

And Jolt Some Corporate Growth

For electrics to catch on seriously outside of Norway, a lot of companies will need to be involved. Among manufacturers, only one automaker, Tesla, makes only electrics. Other car companies have concerns about cannibalising their sales of traditional autos, notes Reto Hess, a Senior Analyst at Credit Suisse, but they are nonetheless moving broadly into electrics. 2015 will see debuts of new models by Audi, BMW, BYD Auto, Chevrolet, Mercedes-Benz, Mitsubishi, Volkswagen and Volvo. And the buck doesn't stop with manufacturing, Hess adds. Making electric into everyday would require huge investments in batteries, components and power distribution networks as well.

This Won't Be Easy

The challenges are daunting, as Hess points out. Because hybrids combine a gasoline and an electric motor under one hood, they are fundamentally inefficient. Pure electrics, on the other hand, face issues with their batteries. In any case they are costly, and perhaps prohibitively so if their lifetimes are shorter than that of the rest of the car. Recharging stations, which require more than just a conventional outlet, are still generally thin on the ground, and the process itself tends to take hours, not the minutes needed to top up a fuel tank. Driving range is still limited to about 160 km (100 miles) per charge, except for Tesla's Model S, which can go nearly three times the distance. While that's far enough for most journeys, it's beyond that of most wallets – a showroom model packs a typical price tag of 80,000-100,000 USD.

Norwegians Would, But Will Others?

Obviously this was acceptable to some 10,000 Norwegians who bought a Model S in the past 18 months, but in a peer-reviewed paper published in mid-2014, two Norwegian economists question the trade-off. Bjart Holtsmark and Anders Skonhoft contend that the electric enticements noted above (waiver of taxes, fees and so on) cost Norway's government just over 8,000 USD per driver per year while delivering a per-driver carbon reduction worth less than 5 USD! "This subsidization idea," they conclude, "should be ended as soon as possible, and…this policy certainly should not be implemented by other countries." Norway's Finance Ministry might be listening, because in April it told news-agency Reuters that it will review its "generous" incentives for electrics. Whether it pulls the plug, turns down the juice or carries on as before, the decision will set a precedent for electrics everywhere.