Of Oil and Environment
Fjords are as much a part of the landscape as the roads are in Norway, and stopping over to take ferries to cross these fjords provides a gorgeous break. Somewhere between Oslo and Geiranger, I took a ferry. On the ferry, I stepped out for a breather. Noticing me standing alone at the top deck in quiet reflection, a man approached me. He spoke English haltingly, but with enough clarity to allow a conversation. I had noticed him earlier driving a Tesla Model S behind me and had waved out.
“So why am I noticing Tesla all over Norway”, I asked as we sipped coffee to palliate the chill of the wind.
“Well, Tesla’s second largest market in the entire world is this tiny country”, he explained with certain seriousness, “we value cars that are environment friendly, and if you buy an electric car, the annual registration fee is waived, as are tolls, and you get access to less-congested traffic lanes.”
At 215 vehicles per 10,000 inhabitants, Norway has the highest per capita number of electric vehicles (majority being Tesla, of course). In comparison US’ per capita ownership of electric vehicles in mere 17. Norway has laid down an ambition to sell only zero-emission vehicles by 2025. Though hugely ambitious, the plan is working out well and electric vehicles are beginning to account as much as 60% of new sales.
The key driver for this growth has been the tax breaks and various subsidies offered by the government. However, those tax breaks may soon come to an end. The government is now proposing a ‘Tesla tax’ that could add to the costs of owning a Tesla.
When I visited the country this autumn, ‘Tesla tax’ was being heavily debated. Some argue – and rightly so – that this unnecessary tax will undercut the 2025 ambition. A similar tax in neighboring Denmark (where I work) brought down the sales considerably. Whereas supporters of the tax – mostly the government – believes that success of Tesla has led to increased congestion in the cities and more wear of the roads, which needs to be compensated by the car owners in the form is this new tax.
Norway is a rich country. The wealth is reflected not only in the ownership of expensive Tesla cars but also in the elevated everyday prices. A pizza in Norway could cost as much as 30 EUR! What’s not apparent is that Norway’s wealth comes from an economy that is skewed into a single track given its oil dependency. Given the sluggish oil prices recently, one would have expected Norway to go through some form of economic slump. However, that’s not the case with this Scandinavian country of only five million people. The Norwegians have focused on not overspending but growing the country's sovereign wealth fund, a massive $1 trillion rainy-day cash pile largely made up of oil money.
The oil fund has been an unexpected success, growing faster than anyone imagined (13 times since 2002). Now, this fund is one of the world’s largest investors (including in Facebook and Apple), with more than half of its asset contribution coming from smart investment decisions than oil sales. In contrast, other major oil producers, such as Saudi Arabia, are struggling and must take drastic steps to earn extra revenues (Saudi Arabia is going ahead with partial disinvestment of its crown jewel, Aramco).
The success of Norway in managing its wealth should be studied, not only in educational institutes but also by the policy makers. While most countries are struggling with debt, here is one country that has converted its natural assets into a source of recurring income.
In Oslo, over coffee discussions with some friends, I learnt that the big policy decision being debated currently is not whether the government should keep 3% of the value of the fund for budget but whether that contribution should be brought down even further. This, after the government has already decided to reduce the investment portfolio’s contribution towards budget from 4% previously to 3%.
When I left Norway after this short visit, I was left with an impression that there are more than few things that Norway could teach the rest of the world, and not only about policy making but also about how Norway has managed to wear contrasting shades successfully, for instance leveraging oil money to subsidize electric cars.
A version of this story was printed in The Hindu