Decarbonization of transport
A position paper prepared by FME MOZEES and FME CenSES

Decarbonization of transport
A position paper prepared by MoZEES and CenSES
ISBN 978-82-93198-25-3

2 Position Paper: Decarbonization of transport and the role of electrification.

Author list
Lasse Fridstrøm, TØIAsgeir Tomasgard, NTNU
Gunnar S. Eskeland, NHH
Kari Aamodt Espegren, Institute for Energy Technology
Eva Rosenberg, Institute for Energy Technology
Per Ivar Helgesen, NTNU/Enova
Arne Lind, Institute for Energy Technology
Marianne Ryghaug, NTNU
Heidi Bull Berg, SINTEF
Hans Jakob Walnum, Western Norway Research InstituteLinda Ellingsen, NTNU
Ingeborg Graabak, SINTEF

About CenSES and MoZEESThe objective of the national centres for Environment-friendly Energy Research (FME) is to establish time-limited
research centres, which conduct concentrated, focused and long-term research of high international calibre inorder to solve specific challenges in the field.
FME CenSES will develop fact-based knowledge for strategic decisions, relevant for both government andindustry. The focus is knowledge for a national energy policy, for national and international climate policy andfor strategies of innovation and commercialization.
FME MoZEES (Mobility Zero Emission Energy Systems) unites battery and hydrogen technology perspectives withthe actual needs of the transport sector. The centre will aid user partners in the design of safe, reliable, and costcompetitive zero-emission transport solutions for the future, focusing on new battery and hydrogen materials,
components, and technologies for sea, road and rail applications.

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Table of Contents
1. Introduction ..........................................................................................................................................................6
2. Current policy and its effects................................................................................................................................7
2.1 Greenhouse gas emissions from Norwegian transport ..................................................................................7
2.2 Abatement strategies for transport ...............................................................................................................9
2.3 Current policies in Norway .......................................................................................................................... 12
2.4 The climate impact of vehicle and fuel taxation ......................................................................................... 15
2.4.1 The value added tax and the differentiated vehicle purchase taxes ................................................... 15
2.4.2 The fuel tax ........................................................................................................................................... 18
2.4.3 Rebound effects through changes in car ownership ............................................................................ 20
2.5 Global versus local effect of Norwegian emission reductions in transport ................................................ 20
3. Publics and users ............................................................................................................................................... 22
3.1 Creating transitions to electric road transport in Norway .......................................................................... 22
3.2 Public perceptions and experiences with transport electrification ............................................................ 22
3.3 The effect of stable framework conditions on behaviour ........................................................................... 23
4. The impact on the distribution and transmission grids ..................................................................................... 24
4.1 The transmission grid is strong enough for electric vehicles ...................................................................... 24
4.2 The major challenge is the distribution grid................................................................................................ 25
5. Potential and barriers for hydrogen in future transport ................................................................................... 27
5.1 The demand and potential role of hydrogen in different transport segments ........................................... 27
5.2 The role of infrastructure – hydrogen fuelling stations .............................................................................. 27
5.3 Policy measures supporting early introduction of hydrogen ...................................................................... 28
6. Transition strategies .......................................................................................................................................... 30
6.1 REMES and TIMES scenarios for 50% emission reductions ......................................................................... 30
6.2 Vehicle fleet projections .............................................................................................................................. 31
6.3 Main challenges ........................................................................................................................................... 35
6.4 The impacts of new trends in mobility ........................................................................................................ 36
7. Discussion and policy implications .................................................................................................................... 39
7.1 Five general strategies ................................................................................................................................. 39
7.2 Fiscal instruments ........................................................................................................................................ 41
7.3 Regulatory measures ................................................................................................................................... 42
7.4 Public investment and procurement ........................................................................................................... 42
7.5 Organizational and institutional measures ................................................................................................. 43
4 Position Paper: Decarbonization of transport and the role of electrification.

7.6 Communication and control ........................................................................................................................ 44
7.7 First-best vs. second-best policies ............................................................................................................... 44
8. Recommendations ............................................................................................................................................. 46
9. References ........................................................................................................................................................ 47

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1. Introduction
This paper aims to provide an understanding of how electrification and hydrogen can play a role in decarbonizing
the Norwegian transport sector.
In 2015, the government made a commitment to link Norwegian climate policy to that of the European Union(EU). An important instrument in EU’s climate policy is the Emissions Trading Systems (EU ETS), which also covers
greenhouse gas (GHG) emissions in Norway, and where the ambition is a 43% reduction for Europe as a wholeby 2030 (compared to 2005). Electrically powered means of transport take their energy from power plants
covered by the ETS and are hence included in the trading system. For emission sources outside the EU ETS, likefossil-fuelled means of transport, the national targets will be decided by negotiation, based on the respective
countries’ resources and capabilities. For Norway the expectation is that the target will be 40% reduction
compared to 2005 levels. The National Transport plan towards 2029 outlines a climate strategy in the transport
sector, with emissions reduced by 50% before 2030 (relative to today - amounting to 8.5 million tons CO2
equivalents). For the transport sector, that implies reductions of 50% or more.
This report takes as a starting point that to meet Norway´s obligations, as described above, the transport sector
will need a transition. Greenhouse gas emissions from transport can be cut in five different ways:
1.
2.
3.
4.
5.

Reduced economic activity (GDP) and standard of living, resulting in reduced transport demand
Reduced mobility of people and goods at all income levels
Transfer of travel and freight to less carbon intensive modes
Improved energy efficiency of vehicles, vessels and craft
Transition to less carbon intensive energy carriers

We discuss these, and summarize the current knowledge regarding:- What is the current state of policy and the observed effects on emissions?
- What are the barriers for further change?
- What is the potential for further electrification using batteries and hydrogen?
- Is a target of 50% reductions feasible within 2030, and what implications does it have for technology
choice and welfare?
This paper builds on research carried out by MoZEES and CenSES research partners and summarize current
knowledge on the role of electrification in the decarbonization of the transport sector in Norway. A major
contribution from this work is that it builds on and integrates insight from several disciplines—science andtechnology studies, economics, engineering, energy systems and markets, industrial ecology, and politicalscience. Methods employed in the various studies are literature reviews, interviews, focus group interviews,
economic analysis, various statistical analysis, energy system models and scenario development.

6 Position Paper: Decarbonization of transport and the role of electrification.

2. Current policy and its effects
2.1 Greenhouse gas emissions from Norwegian transport
According to official statistics, the aggregate greenhouse gas (GHG) emissions from mobile sources in Norway
amounted to 16.474 million tons of CO2 equivalents (mtCO2e) in 2016 (Fig. 2.1).
Not all of this is due to transport. Agricultural, construction and household machinery accounted for 2.082
mtCO2e, and the fisheries for another 1.092 mtCO2e. Transport as such was accountable for 13.300 mtCO2e, of
which 9.927 mtCO2e in the road sector, 1.991 mtCO2e at sea, and 1.305 mtCO2e in aviation1. Some 25 per centof the 53.332 mtCO2e emitted on Norwegian territory in 2016 was due to transport.

Fig. 2.1. Greenhouse gas emissions from Norwegian mobile sources 1990-2015. Source: Statistics Norway (Statistikkbanken).

In 2016, emissions from transport were 22.6 per cent higher than in 1990 and 1.5 per cent higher than in 2005.
However, the volume of transport has increased far more than the GHG emissions. Domestic motorized travel
demand has increased from 54 billion person kilometres to more than 80, i.e. by 50 per cent (Fig. 2.2). In 2016,
the car mode had become even more dominant, with its 80 per cent of all person kilometres, than it was in1990.

1 Counting Kyoto protocol gases only. The emission of particulate matter and water vapor at high altitudes probably adds

another 25 to 75 per cent to the climate impact of aviation (Aamaas et al. 2013).

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The demand for freight has increased even more, by 129 per cent between 1990 and 2015 (Fig. 2.3). Even here,
the road mode has the largest market share, as measured in ton kilometres, with 48 per cent in 2015. The sea
mode is, however, not much smaller, with its 46 per cent.

Fig. 2.2. Domestic volumes of motorized travel 1990-2016, by mode. Source: Farstad (2018).

Fig. 2.3. Domestic freight volumes 1990-2015, by mode. Source: Farstad (2016).

8 Position Paper: Decarbonization of transport and the role of electrification.

2.2 Abatement strategies for transport
According to Banister (2008), there are in essence four ways to combat greenhouse gas (GHG) emissions intransport:
1. Reduced freight and travel demand, i.e. fewer trips and shipments
2. Distance reduction through land-use policy measures, i.e. shorter itineraries
3. Modal shift: from road and air to sea and rail
4. Increased efficiency through technological innovation.
A similar, well-known typology is the so-called avoid-shift-improve triplet. One can either (i) reduce the total
amount of transport (avoid), (ii) shift travel and freight to more efficient and/or less carbon-intensive modes(shift), or (iii) replace the energy technology of vehicles, vessels and aircraft by more efficient and/or lesscarbon-intensive alternatives (improve). One notes that option (i) encompasses Banister’s options 1 and 2,
while (ii) and (iii) correspond to his options 3 and 4.
To fix ideas, consider the mathematical identity shown in Fig. 2.4. The total amount of emissions from travel orfreight may be decomposed into five mutually exclusive and exhaustive factors. By operating on any one ofthese factors, one may, in principle, affect the total amount of emissions proportionately.

Figure 2.4. A multiplicative decomposition of emissions from transport. Source: Fridstrøm & Alfsen (2014).

The economic and political costs of GHG mitigation are likely to diminish as we move from left to right in themultiplicative decomposition. To reduce emissions (A) by deliberately reducing economic growth and thestandard of living or (B) by limiting trade and mobility seems like an almost infeasible strategy in a democraticsociety. In the EU (2011b) white paper ‘Roadmap to a Single European Transport Area - Towards a competitiveand resource efficient transport system’, this is explicitly recognized when (in para. 18) it is stated quite bluntly
that ‘curbing mobility is not an option’.
If transport demand is to be reduced, the most realistic strategy may seem to be enhanced urban planning anddensification, which could allow for generally shorter commutes and more competitive mass transit, bicycling
and walking (Banister’s option 2). However, this strategy would yield results only in the very long term, as it
takes time to reshape a city and its land use.
In the short and medium term, ride sharing, car sharing etc. may seem to carry more promise. Modern
information technology may reduce the barriers against these collective arrangements. Even so, it seems
unlikely that these schemes could reduce the volume of traffic by more than a few per cent.
The shift strategy (C) is not very promising. Although modal shift – from road to sea and rail – has been part ofthe official policy for decades, at the EU level as well as in individual states, little has happened in terms of9travel and freight market shares. According to Eurostat, road transport’s share of freight ton kilometres in EU28
has hardly changed between 2001 and 2014, being stable between 74 and 77 per cent. As for the travel
market, a comprehensive modelling study for Norway (Fridstrøm & Alfsen 2014) examined a large number ofradical policy options, including 50 per cent higher fuel prices, 50 per cent higher toll rates, drastically
improved mass transit, 50 per cent reduced transit fares, and/or 25 per cent higher airfares. According to thestudy, even if all of these measures were implemented together, they would not reduce GHG emissions fromshort and long distance domestic travel by more than 16 and 5 per cent, respectively.
Apparently, the competition between modes is not strong enough for politically feasible policy measures tobring about massive changes in the choices made by travellers and shippers, a result corroborated by Brand etal. (2013) in the travel demand case and by Marskar et al. (2015) in the freight demand case.
This leaves us with the improve strategy, in other words energy technology transition, as the most promising
path forward. When demand cannot be capped or shifted away from the road mode, the road vehicles
themselves, or possibly their fuel, need to be transformed (strategies D and E in Fig. 2.4). Enhanced capacity
utilization could also help.
The extent to which existing vehicles, vessels and aircraft can be retrofitted with more energy efficienttechnology is limited. A certain potential exists for substituting compressed natural gas (CNG) for other, morecarbon intensive fossil fuel combustion in existing ships. In some cases, it may even be possible to replace one
or more combustion engines by battery or fuel cell electric motors. In the road and air sectors, however,energy transition can only take place through vehicle and aircraft fleet renewal. If one can make sure that thenext generations of cars and trucks are consistently eco-friendlier than the previous ones, the vehicle fleet will
be steadily improving in terms of its environmental footprint.
Driven by the need to comply with the emission targets set by the European Commission for 2021,
manufacturers have endeavoured to bring down the CO2 emission rate of new automobiles, as measured by
the New European Driving Cycle (NEDC). As averaged over all new passenger cars brought to the EU market,
the NEDC rate of emissions should not exceed 95 gCO2/km in 2021.

10 Position Paper: Decarbonization of transport and the role of electrification.

Fig. 2.5. Annual average type approval (NEDC) and estimated on-the-road rates of CO2 emission from new passenger cars
registered in EU28 and in Norway 2001-2017. Sources: Updated from Fridstrøm & Østli (2017) and www.ofvas.no.

Between 2001 and 2016 this rate, as evaluated for EU28, has come down by 30.5 per cent, from 170 to 118
gCO2/km. A large part of this decline is, however, due to enhanced performance at the laboratory test rather
than to improved real world, on-the-road fuel mileage. According to Tietge et al. (2017), the discrepancy
between on-the-road and type approval emission rates has grown from an estimated 9 per cent in 2001 to afull 42 per cent for the 2016 cohort of passenger car models. Considering the growing divergence, the 20012016 decline in CO2 emission rates among new cars in EU28 reduces to less than 9 per cent – from 184 to 168
gCO2/km (Fig. 2.5).
In Norway, type approval and real-world emissions rates have decreased much faster than in the EU. This isdue primarily to the rapid market uptake of battery electric vehicles (BEVs), and secondarily to the growing
market share of plug-in hybrid electric vehicles (PHEVs), grouped in Fig. 2.3 together with the conventional
gasoline and diesel vehicles, respectively. Thanks to these two circumstances, the type approval and real-world
emission rates of new Norwegian registered automobiles have come down by 49 and 33 per cent, respectively,
between 2001 and 2016. As of 2017, the type approval rate is down by a full 55 per cent, to 82 gCO2/km.
Apparently, the potential for improving the energy efficiency of the internal combustion engine (ICE) is limited.
This suggests that there are only two possible pathways to carbon neutral road transport: (a) widespread
substitution of biofuel for fossil fuel in ICEs, or (b) all-out vehicle fleet electrification.
Although certain biofuels (such as corn ethanol) appear no more climate friendly than their fossil counterparts,
chances are that option (a) may contribute to a non-negligible decrease in GHG emissions, most notably in the
short and medium term. In fact, the bulk of the road transportation emissions reduction from 2015 to 2016visible in Fig. 2.1 is due to increased biofuel use.

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However, the challenges are numerous. Unless the biofuel is based on plants with a relatively short rotation
cycle, its GHG abatement effect will be too slow in view of the urgent need to bring emissions down. Secondly,
the indirect land use change (ILUC) impacts of biofuel production may be difficult to predict and control. Last,
but not least, the amount of photosynthesis occurring on the planet is simply not sufficient to satisfy more thana relatively modest part of worldwide transport energy needs.
Option (b), on the other hand, carries considerable promise. Many analysts foresee that the total costs ofownership (TCO) of BEVs will drop below those of ICE cars some time before 2025, even without government
incentives. As for heavy-duty freight, Moultak et al. (2017) identify three possible zero emission technologies
based on electric motors: (i) battery electric vehicles (BEVs), (ii) hydrogen fuel cell electric vehicles (FCEVs), and(iii) catenary (trolley wire) or other along-the-road electric charging. All of these options imply replacement of
the rolling stock. They are, however, quite different in terms of their infrastructure requirements and potential
geographic scope.
The BEV option has the great advantage of offering a three- to fourfold energy efficiency improvementcompared to the ICE. Thus, the long-term operating costs of BEVs are likely to be considerably lower than forgasoline or diesel driven cars – depending, though, on the relative prices of energy carriers. Their maindrawback is the weight of the battery – about 75 times higher per unit of energy than a can of diesel.
For short-sea shipping and ferrying, this drawback is of lesser importance. Non-negligible emission cuts could
be achieved by electrifying all or most of Norway’s 120 ferry crossings. In heavy trucks, however, battery packs
are liable to cut too much into the payload. Hence, in this case hydrogen fuel cell technology is considered bymany to be a more promising zero emission technology (Rosenberg et al. 2010, Moliner et al. 2016,
Maniatopoulos et al. 2015). Nevertheless, the energy efficiency improvement of an FCEV replacing a diesel
powertrain is quite limited, and much smaller than in the case of BEVs. Thus, the cost hurdle against zero
emission technology in heavy trucks is considerably higher than for passenger cars.
The catenary option amounts to electrifying not only the vehicles, but also the road. The right-most lane of the
highway would typically be equipped with overhead electric wires or, possibly, with cables for inductive
charging embedded in the road surface. The cost of such infrastructure would most probably mean that only
the busiest arteries could be equipped with it. On other parts of the network, vehicles would have to rely on
batteries, fuel cells or ICEs.

2.3 Current policies in Norway
The Norwegian government has committed itself to climate policy goals in line with the Paris agreement andwith the European Commission’s targets for sectors outside the EU Emissions Trading System (ETS). The overall
GHG emissions target for 2030 is a 40 per cent reduction from the 1990 level. In the non-ETS sector, which
includes transport, the preliminary target at the EU level has been set at 30 per cent reduction by 2030
compared to 2005. It is expected that Norway will face a 40 per cent reduction requirement. At the 2050
horizon, the overall national target is a nearly carbon neutral society (CNS), quantified as an 80-95 per cent
GHG emissions reduction (Meld. St. 41 2016-2017).
In this context, emission reductions in transport appear crucial. In its climate strategy, the government has put
forward rather ambitious targets for the market uptake of zero and low emission vehicles in 2025 and 2030:
12 Position Paper: Decarbonization of transport and the role of electrification.

 By 2025, all new passenger cars and all new urban buses acquired are to be zero emission vehicles (ZEVs), i.e.
BEVs or fuel cell electric vehicles (FCEVs).
 By 2030, the same should apply to all new light commercial vehicles (LCVs, or ‘cargo vans’), to three quartersof all new interurban buses and coaches, and to half of all new heavy duty freight vehicles (HDVs, i. e. trucks
and semitrailer tractors).
In the market for private cars, strong incentives have already been implemented. The probably most important
one is the differentiated, one-off vehicle purchase tax, payable upon first registration of any passenger car or
cargo van equipped with an ICE. As of 2016, the purchase tax was a sum of four independent components,
Based on calculations of curb weight, ICE power, and type approval CO2 and NOX emission rates, respectively(Fig. 2.6). The CO2 component was introduced in 2007 and the NOx component in 2012. As of 2017, the engine
power component has been abolished (Fig. 2.7).
Compared to other examples internationally, the Norwegian CO2 differentiated vehicle purchase tax is special.
While a textbook recommendation for CO2 abatement is to tax fuels only, the Norwegian vehicle tax is welldesigned to influence vehicle choice: it is technology neutral (with the exception of the special treatment of
ZEVs and PHEVs, see below), it provides continuous rather than stepwise incentives, and it is high; much higher
than any measure of the social costs of carbon (Yan and Eskeland, 2018, Eskeland, 2012). As such, theNorwegian policies offer an example internationally to test the potential for carbon-leaner vehicles.
Particularly strong incentives apply to zero emission vehicles (ZEVs), be they battery or fuel cell electric. ZEVs
are exempt of vehicle purchase tax, and have reduced or no road tolls and public parking charges. They benefit
from strongly reduced ferry fares, lower annual circulation tax and lower income tax on company cars.
Moreover, they are generally allowed to travel in the bus lane and may be recharged for free in many public
parking lots. Last, but not least, while ICE and hybrid cars are subject to a standard 25 per cent value added tax(VAT) on the price exclusive of purchase tax, ZEVs, their batteries and their leasing contracts are exempt of VAT.
The incentives work (Figenbaum & Kolbenstvedt 2015, 2016; Figenbaum 2017; Ryghaug and Skjølsvold 2019;
Yan and Eskeland 2018; Fridstrøm and Østli 2017, 2018). Thanks to a 29 per cent BEV market share and a 19
per cent PHEV share2, the mean type approval rate of CO2 emissions from new passenger cars registered in
Norway during January-March 2018 was 72 gCO2/km, equivalent to a fuel economy of 75 miles per gallon(mpg) for a gasoline driven car. When BEVs are excluded, the mean rate comes out at 101 gCO2/km. In March
2018, the mean type approval rate of CO2 emissions from new cars reached its all-time low of 63 gCO2/km(blue curve in Fig. 2.10).

2

Source: www.ofvas.no.

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Fig. 2.6. Norwegian vehicle purchase tax 2016, as a function of curb weight, combustion engine power, and type approval
CO2 and NOx emission rates. Source: Fridstrøm (2017b).

Fig. 2.7. Norwegian vehicle purchase tax 2017, as a function of curb weight and type approval CO 2 and NOx emission rates.
Source: Fridstrøm (2017d).

14 Position Paper: Decarbonization of transport and the role of electrification.

2.4 The climate impact of vehicle and fuel taxation
A considerable scientific literature exists on the respective merits of vehicle and fuel taxation3. Although no
general consensus exists, economists would traditionally argue that a pigovian fuel tax, or a carbon cap-andtrade system encompassing road transport, would constitute a near-optimal way of internalizing the costs of
tailpipe emissions generated by fossil fuel combustion.4 Since households generate no external costs simply byowning a vehicle, only when they use it, most economists would argue that taxing the vehicle as such would be
misguided.
On the other hand, it may be argued that next to residential choice, the acquisition of a car represents themost basic and long-term decision bearing on travel behaviour that is made by the typical private household.
Choice of vehicle model affects society’s GHG emissions for the coming 15-20 years, regardless of whether thevehicle remains at the hands of its first owner, or is traded second hand. In this perspective, it makes as muchsense to tax the car at its first registration as when it is driven.
In addition, some studies have emphasized the apparently greater GHG abatement potential of fiscal incentives
directed towards vehicle purchase and ownership. The large, upfront expenditure involved in buying a (moreexpensive) car is more likely to affect consumer behaviour than the relatively marginal extra cost caused, insome near or distant future, by a fuel tax.

2.4.1 The value added tax and the differentiated vehicle purchase taxes
For ICE vehicles, the Norwegian VAT and purchase tax taken together typically add 50 to 150 per cent on top of
the pre-tax value – or even higher for the largest and least energy efficient vehicle models (Fridstrøm & Østli
2017). Thanks to the tax exemptions, battery electric vehicles (BEVs) come out with a mean retail price in
Norway that is on a par with small and medium sized gasoline or diesel cars.
For plug-in hybrid electric vehicles (PHEVs), certain special rules apply. To leave the standardized weight of thebattery pack out of the tax calculation, the taxable curb weight of PHEVs is reduced by 23 per cent. Since theCO2 component is generally negative for cars emitting less than 70 gCO2/km (as of 2018, down from 95
gCO2/km in 2016), lightweight PHEVs may come out with zero of near-zero purchase tax. However, thepurchase tax cannot become negative, as in the French feebate system (D’Haultfoeuille et al. 2013).
For LCVs (cargo vans), the same kind of incentives apply, however with less force, since in this case thepurchase tax rates are typically 20-25 per cent of the rates applicable to passenger cars. In 2017, 2.5 per cent of
all new and second-hand imported cargo vans registered in Norway were BEVs2.
In addition, the VAT exemption does not carry much weight in the case of LCVs, since most of these are bought
by VAT registered companies. Hence, whatever input VAT is levied on the vehicle will be written off against theoutput VAT payable by the company.

3 See, e.g., references in Fridstrøm and Østli (2017).
4

A fuel tax would not, however, correctly internalize all other marginal external costs, such as road wear, congestion,
noise, accidents, or particulate matter released from tarmac or brake pads (Thune-Larsen et al. 2016). For theseexternalities, electronic road pricing would be more appropriate (Fridstrøm 2017f).

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For passenger cars, in contrast, a special tax rule prevents companies from writing off the input VAT, except in
those cases where the commercial use or trading of the vehicle constitutes the core business activity of thecompany. This applies to car dealers, to car rental and leasing companies, as well as to taxi companies,
commercial limousine services, etc. However, for passenger cars used in an ordinary company’s daily
operations, or placed at the disposal of employees, no input VAT is deductible under Norwegian law.
The exemptions from VAT, reduced road toll, as well as reduced income tax and annual circulation tax for BEVs
have been notified to the EFTA Surveillance Authority, which, in its decisions of April 21, 2015 and of November
8, 2017, approved these fiscal incentives. Without such approval, the incentives would fall into the category ofillegal state aid under the rules of the single European market. The BEVs’ exemption from purchase tax is,
however, not subject to notification, since this rule was implemented already in 1990, before the conclusion of
the European Economic Area (EEA) agreement, which incorporates Norway into the single market.
A fairly general consensus exists between the political parties to continue and reinforce the incentives for zeroand low emission vehicles, at least until 2021, to drastically reduce the CO2 emissions from new vehicles at the2025 and 2030 horizons. However, the EFTA approval of the VAT exemptions on BEVs and on their batteries
and leasing contracts expire on December 31, 2020. The continued use of these fiscal instruments, beyond
2020, will be contingent upon renewed EFTA approval.
The impacts of changing the vehicle purchase tax components for passenger cars were calculated by means of
the discrete choice model developed by Østli et al. (2017). If, in 2014, all purchase tax components had been
uniformly 10 per cent higher, the average type approval CO2 emission rate of new cars would have been an
estimated 2.41 gCO2/km lower, corresponding to an elasticity –0.21. The elasticity of the CO2 emission ratewith respect to each of the CO2, weight and engine power components, respectively, came out as –0.10, –0.10,
and –0.01 (Fig. 2.8)5. Thus, the weight and CO2 components are just about equally effective CO2 abatement
instruments, while the engine power component has a lesser impact.

Fig. 2.8. Absolute changes in mean type approval CO2 tailpipe emission rates of new passenger cars, compared to 113
gCO2/km reference case, under six fiscal policy scenarios calculated for 2014. Source: Østli et al. (2017).

5

The initial level was 113 gCO2/km, so a –1.1 gCO2/km change corresponds to –1 per cent.

16 Position Paper: Decarbonization of transport and the role of electrification.

A revocation of the VAT and purchase tax exemptions for BEVs was found, in the same study, to be consistent
with a 3.85 gCO2/km (or 3.4 per cent) increase in the average type approval emission rate of new passenger
cars. Note, however, that this result hinges critically on the assumed alternative tax regime, in this case that
BEVs be subject to the same purchase tax rules as PHEVs. Incidentally, this is precisely what the Government
proposed in its fiscal budget for 2018 (Prop. 1 LS 2017-2018). This proposal was not approved by the
Parliament.
Østli et al. (2017) also carried out a counterfactual back-casting exercise, in which they simulated the demandfor passenger cars during 2007-2014 under alternative tax regimes (Fig. 2.9). They found that without the CO2component and the VAT and purchase tax exemptions for BEVs, the average type approval emission rates of
new cars in 2014 would have been 23 gCO2/km (or 20 per cent) higher.

Fig. 2.9 Counterfactual back casting simulating the non-introduction of CO2-graduated purchase tax and/or tax exemptions
for battery electric cars 2007-2014. Source: Østli et al. (2017).

Yan & Eskeland (2018) conclude with some additional observations. First, they notice that the Norwegian CO2
differentiated vehicle purchase tax is well designed from the perspective of influencing future emissions via thevehicle choice decision: it is continuous rather than stepwise, and it is almost technology neutral. In observing
that the vehicle owner/driver has no direct interest in CO2 other than through associated qualities(acceleration, space, luxury), they note that this instrument cost-effectively stimulates a combination of
innovation, efforts and sacrifices at the hands of vehicle manufacturers and buyers. The study finds an elasticity
of emitted CO2 grams with respect to the car’s price (when raised by the CO2 fee) of minus one half, so if theCO2 differentiated tax raises the average car’s price by 20 percent, then average emissions per vehicle
kilometre decline by ten percent. The way the tax makes people choose leaner vehicles is found to be about
half the reductions from choosing vehicles in leaner segments (say: from large to mid-size cars) and half fromchoosing leaner models within a segment.
In summary, the Norwegian vehicle purchase tax and the tax exemptions for ZEVs have had a decisive impact
on the prospective climate footprint of private cars. In September 2017, the mean type approval rate of CO 217emissions from new cars reached an all-time low of 71 gCO2/km (blue curve in Fig. 2.10). When BEVs are
excluded (red curve), the mean rate comes out at 100 gCO2/km. The upward spikes in the red curve typicallyreflect the rush to buy certain high emission car models in December, before next year’s stiffened purchase tax
makes these cars even more expensive – another testimony that vehicle customers behave much like economic
men, responsive to financial incentives.

Fig. 2.10. Monthly average type approval emission rates (gCO2/km) of new passenger cars registered in Norway 2010-2018,with EU28 annual averages. Sources: Updated by from Figenbaum (2017) and www.ofvas.no.

2.4.2 The fuel tax
In addition to the tax exemptions applying to the vehicles, the fuel taxes (NOK 6.33 per litre gasoline and NOK
5.08 per litre diesel as of 2018) also represent an inherent incentive for CO2 leaner cars and ZEVs. Since thesevehicles do not depend on liquid fuel, they get by without paying the ‘road use’ component (NOK 5.17 and NOK3.75) included in the fuel tax, despite the fact that the externalities due to road wear, noise, accidents andcongestion are not very different between ZEVs and ICE cars. The fuel tax also serves to make lean, lowemission ICE and hybrid vehicles more attractive to the consumer.
The price elasticity of demand for fuel is a key parameter in determining the climate impact of changes in thefuel tax. International meta-analyses (Brons et al. 2006, Labandeira et al. 2016) suggest elasticities in the areaaround –0.35 for gasoline and –0.20 for diesel.

18 Position Paper: Decarbonization of transport and the role of electrification.

However, the fuel price elasticity depends crucially on the geographic and economic context. Its numericalvalue will be higher in urban areas with quantitative potential in high quality mass transit supply and/or many
opportunities for bicycling or walking than in remote rural districts with few alternatives to the private car. As
argued by Fridstrøm (2017b), fuel demand must be expected to be less elastic in sparsely populated Norway
than in practically any other EU or EFTA country.
Similarly, there are obvious reasons to expect higher fuel demand responsiveness to prices (greater absolutevalue of the price elasticity) in the long run, with greater freedoms, than in the short run. The greater long run
demand elasticity can reflect not only car choice (more fuel efficient cars under higher gasoline prices, when
car replacement decision arrives; Eskeland and Feyzioglu 1996), but also locational choices, habit formation,
supply responses in bus service, etc. Eskeland and Yan (2018) found leaner car choice in Norway to be about assensitive to fuel prices as to the CO2 differentiated tax, when calibrated to cost the buyer the same amount.
Steinsland et al. (2016) study the impact of NOK 0.20 increase in the per kilometre fuel cost of car driving. Theyfind that in the so-called intercity region around Oslo (i.e., the triangle formed by the cities of Skien, Lillehammer and Halden, with surroundings); short-haul car travel demand would decrease by an amount corresponding to a fuel price elasticity of –0.22. For long-haul domestic car trips, they find an elasticity of –0.11.
Studying short-haul trips in and around Bergen, the country’s second largest metropolitan area, Madslien &Kwong (2015) find an elasticity of –0.17. There is reason to believe that in other parts of Norway, with lessdeveloped mass transit supply, fuel demand is less elastic than in the two most important metropolitan areas.
In addition to the direct travel demand effects, fuel prices influence GHG emissions through the vehicle
purchase choices made by households and companies. Higher fuel prices make people choose leaner cars.
Fridstrøm & Østli (2018) calculated the elasticity of the average type approval CO2 emission rate of newpassenger cars with respect to the fuel price at –0.21 as of 2016.
This elasticity has a long-term interpretation. The full effect will materialize only when the entire fleet has been
replaced. Since the life expectancy of Norwegian passenger cars is around 17 years (Fridstrøm et al. 2016), theeffect is only –0.01 in the course of the first year. In the long term, however, the indirect car fleet effect seems
to be just about as important as the direct travel demand effect. Yan and Eskeland’s estimate of an elasticity of
the average CO2 intensity in new car sales with respect to new car prices (when these change due to the CO2
tax rate) of minus one half is in the ballpark of estimates for price elasticities for polluting goods, though in thehigh end, the high responsiveness perhaps reflecting a time of technological change in which similar services
increasingly can be offered with less or even zero CO2 emissions per vehicle kilometre.
Commercial freight vehicles also use diesel fuels. Here, estimates of the price elasticity of demand are hard tocome by. However, Hansen et al. (2017) carry out a model simulation resulting in CO2 abatement effects
compatible with an overall fuel freight demand elasticity of –0.11, calculated as the weighted average of –0.09
for domestic consignments and –0.23 for border-crossing ones. For freight vehicles, too, the potential in ourtime of technological change is important, and should not be ignored in the design of policy instruments inparticular directed towards technology development and early adaptation.

19

2.4.3 Rebound effects through changes in car ownership
The above impact estimates ignore rebound effects due to changes in aggregate car ownership. Such effects
are potentially important. D’Haultfoeuille et al. (2013) find, e.g., that the French fee bate (bonus-malus) system
for automobiles is counterproductive in terms of CO2 abatement, because the bonus has made car ownershipaffordable to a larger number of families. In Norway, the tax exemptions for ZEVs have enlarged theassortment of relatively inexpensive cars with low operating costs. It is conceivable that this might lead toincreased household car ownership and use. To answer this question, an econometric model of aggregate
automobile demand is needed.
Importantly, however, there is no doubt that Norway and Norwegian cities have certain additional policy
instruments to manage demand both for freight and mobility, in total as well as in modal split. Illustrations are
public transport policies, bicycle paths as well as fuel taxes and Norway’s pioneering toll rings, where the lattercan be embryonic versions of more advanced forms of road charging, accounting for local as well as temporaland global objectives.

2.5 Global versus local effect of Norwegian emission reductions in transport
A central question when establishing policy to reduce emissions in a single sector in a single country is whether
the local emission reductions will have effects globally or if carbon leakage will occur. Treaty approaches fromthe Climate Convention (1992) onwards have chosen a territorial approach to emissions accountability, but aslong as cooperation is incomplete or weak, checking emission consequences outside natural borders has
become important (Ellingsen et al., 2014, Yihui and Chan, 2005).
When considering emissions from producing the energy used in operations in the transport sector (fuels, orelectricity), the effects of the EU ETS must be considered. If one does not take into account the cap-and-tradesystem, and instead calculate emission effects from electrification based on the average (or marginal) carbon
intensity of the European power sector, one would strongly underestimate the actual effects of switching toelectricity in European transport. For electricity in Europe, emissions from power generation is capped by the
EU ETS. Increased demand for electricity in Norway due to electrification of transport will therefore notincrease emissions elsewhere in Europe, since the number of available allowances in the ETS sectors is fixed(Eskeland, 2012). This is one of the main properties that makes emission reductions in the transport throughelectrification attractive. Local emission reductions in Norway when switching from fossil fuels to electricity
reduce emissions in the Norwegian non-ETS sectors; there is no increase in transport emissions in othercountries and no increase in emissions within the EU ETS. From an energy perspective, the local effects interms of emission reductions equal the global effects.
When including effects originating from vehicle manufacturing, the picture is more nuanced. The production
intensity for a mid-sized BEV is around 6.0–7.4 ton CO2-eq/ton of car, while for ICE vehicles it is around 4.2–5.5
ton CO2-eq/ton of car (Ellingsen et al., 2018). The difference in emission intensity is particularly due to the Liion battery.
The high GHG emissions from production of the Li-ion battery stem mainly from the battery cells (Kim et al.,2016; Ellingsen et al. 2014). While the cell materials contribute to a relatively small share of these cell-related
GHG emissions (, the energy demand in cell manufacture is a significant contributor (45-60% of total battery
20 Position Paper: Decarbonization of transport and the role of electrification.

production GHG emissions). The reason for this is that currently, the energy demands in the cell manufacturing
processes are high and met with carbon intensive energy sources.
Production location affects the GHG emissions of cell manufacture as it has bearings on both the energy
demand and energy sources. In terms of energy demand, the production location is important because theclimate affects the air humidity levels and this, in turn, affects the energy demand in dry room operations. Dry
room operation has been identified as a particularly energy demanding processes in cell manufacture (Ellingsen
et al., 2014; Yuan et al., 2017). Currently, lithium-ion cells are primarily produced in South Korea, China, andJapan. Regions of these three countries are affected by the East Asian Monsoon, which is characterized by awarm, rainy monsoon season lasting from early May to September (Yihui and Chan, 2005). Thus, the humid
monsoon summer is likely to affect the energy use in dry room operation (Ellingsen, 2017). In terms of energy
sources, South Korea, China, and Japan are all countries that rely on a large share of fossil sources for to
generate heat and electricity. Consequently, moving cell manufacture to areas with lower humidity and cleaner
energy sources will be beneficial for reducing the GHG emissions of battery production. The use of renewableenergy sources in cell manufacture can reduce the GHG emissions of battery production by around 50%(Ellingsen et al., 2014). Dynamics of regime shifts and sustainability transitions
A whole series of different factors are often seen as barriers to the use of sustainable technologies in transport:
technological factors, government policies and regulatory framework, cultural and psychological factors,
demand factors, production factors, infrastructure and maintenance, undesirable societal and environmental
effects of new technologies. According to Hoogma et al. (2002: 17), these barriers altogether constitute “astructure of interrelated factors that feedback upon one another and jointly give rise to inertia in, and specificfactors of, technological change.” In order for large-scale electrification of the transport sector to happen,
Hoogma et al. (2002) have pointed out some general features that may be seen as key aspects of technologicalregime shifts (Kemp, 1994). These are, to put it shortly: (1) To have enough time (2) To have deep interrelations
between technological progress and the social and managerial environment in which they are put to use,
including new user-supplier relationships. (3) Availability of complementary technologies (4) perceptions andexpectations of the new technology Structural regime shift is a co-evolutionary process that entails a numberof structural changes at different levels that happens simultaneously. Change processes often meet resistancefrom vested interests and give rise to public debates as to the efficacy and desirability of the technology. In thenext section, we will highlight some of the factors that have contributed to the electrification of the transport
sector in Norway, with a special focus on user experiences, perceptions and the expectations of BEVtechnology.

21

3. Publics and users
3.1 Creating transitions to electric road transport in Norway
The politics of technology involve translations between various interrelated settings ranging from the context
of design to the context of use. People, institutions, and firms must be aligned, moulded, and disciplined tocreate (and accept) technological development (Sovacool 2014). Governance in relation to technologicaldevelopment is a many faceted process, in which many different actors and circumstances plays a role
(Ryghaug and Skjølsvold 2019). A relevant CenSES study in this respect looked at the way different forms andmodes of governance influences mobility practices in Norway, with a special focus on BEVs (Ryghaug andToftaker 2016). This study focused on the role of user imaginaries in relation to electric vehicles and analyses
the role these imaginaries play in the ongoing transition towards electrification of the transport sector.
The study found that the incentives implemented to achieve an accelerated use of EVs in Norway, formed
specific user imaginaries that played a role in shaping the governance. Norwegian stakeholders have largely
recognized that the responsibility for a rapid transition towards a sustainable transport sector lies beyond
individual behavioural choices. Whereas early users were somewhat individualized and given agency on the
grounds of being environmentally engaged, economically resourceful and with a particular interest intechnology, future users were generalized as aggregates that were not particularly preoccupied with proenvironmental behaviour or a particular technology. Overall, current and future users were described as
primarily concerned with technological qualities and motivated by the economic advantages of owning andusing EVs. Users were therefore seen as needing to be equipped with economic and political predictability inorder for the deployment of electric cars to continue, and in order to create a self-propelled market for EVs.
Thus, the furthering of electric transport was described as best achieved using economic incentives orremoving technical barriers such as low battery capacity and insufficient charging infrastructure. This strategy
may be recognized in the actual electrification policies, such as the “incentives package” to which many of the
stakeholders had contributed. Further, the stakeholders in unison claimed that a premature ending of current
incentives would be detrimental, as it would be likely to slow down or even stop the deployment of electriccars in Norway.
By working towards making the electric car equivalent to the ICE car in terms of range, comfort, size, anddesign, the experts chose mainstreaming as their preferred strategy. However, this way, one might overlook
the transformative potentials of the practice of driving electric cars, as shown by Ryghaug and Toftaker (2014)
in their chapter on user practices and preferences.

3.2 Public perceptions and experiences with transport electrification
The rapid expansion of electric cars in Norway to date has most likely been prompted by strong financial andregulatory incentives such as free access to toll roads, ferries, public parking and charging stations, in addition
to reduced taxes and access to bus lanes. However, in order to be successful, alternative technologies like theelectric vehicle need to generate sufficiently strong support beyond the institutional level, for instance by
providing users with alternative values and expectations without challenging accepted standards of sociotechnical behaviour (Hård and Jamison 1997; Ryghaug and Skjølsvold 2018). This means that we need toinclude users when researching processes of technological innovation, policy development, and policy

22 Position Paper: Decarbonization of transport and the role of electrification.

implementation. In papers studying actual use of electric vehicles in Norway (Ryghaug and Toftaker 2014;
Ingeborgrud 2014) found that electric cars are often seen as a better and more comfortable than the ICE car
due to their small size, electric engine and fast acceleration – but also due to the good feeling of driving a lesspolluting car. Hence, driving electric vehicles is seen as advantageous beyond saving time and money. Further,driving range is seldom found to be a problem, as most daily trips are within the range capability of modern
BEVs and most users have adopted their usage accordingly (often, the household also have a conventional car
at their disposal). Electric car drivers also found charging at home to be easier than using gasoline stations.
Overall, these studies pointed to some interesting findings regarding the possibilities of reframing vehicles, atask that historically has been difficult to achieve (Hård and Jamison 1997; Hård and Knie 2000). For many
years, electric vehicles have been referenced as inferior, as the next solution, or as an incomplete innovation
because of weaknesses regarding size and driving range compared to conventional cars. Ryghaug and Toftaker(2014) on the other hand show that electric vehicles have other qualities that have not been previously
considered essential, such as comfort. The study also highlights that electric cars might have sometransformative properties in that they reintroduce novelty to its users and re-sensitizes them to mobility issues.
To some extent, electric vehicles contribute to users rethinking, being more aware and changing own mobility
patterns (i.e. substituting driving for flying) while also raising awareness of their electricity consumption(Ryghaug and Toftaker 2014, Throndsen et al., 2017; Ryghaug, Skjølsvold and Heidenreich 2018). Studies also
show that the electric car ownership seem to trigger an interest in producing renewable energy, e.g., installing
solar Photovoltaics (PV) and energy transition dialogues more in general (Throndsen et al. 2017; Ingeborgrud
and Ryghaug 2017).

3.3 The effect of stable framework conditions on behaviour
Previous studies have shown the importance of consistent governance, demonstrations of political will andproblem-solving actions for the creation of pro-environmental behaviour among the public. Thus, clear, visible
and forceful conditions are in themselves important for the adoption of electric cars and the electrification of
the road transport. The importance of stable framework conditions for the development and implementationof new technologies are, of course, not only important to end users and customers, but also to industry. Thishas been proved repeatedly regarding new renewable energy technologies such as offshore wind (Steen and
Hansen 2011).
A number of studies have demonstrated that the Norwegian “incentives package” comprising both economic
and other incentives has been important for the adoption process in Norway. An understated point is the way
the incentives themselves produce a type of “certification” of the technology as a good environmental choice(Ingeborgrud 2014). In other words, when people see that exactly this technology is supported by a long list ofpolitical incentives, this also contributes to their understanding of the technology as environmentally soundand as a future oriented choice, and something that reduces the risks involved for those who are interested intaking environmentally sound choices (Ingeborgrud 2014). In the end, this also means that if you start taking
away incentives or reducing them drastically, this could potentially destabilize the public perceptions of theelectric vehicle as an environmentally sound technology, at least to some degree. Overall, this underlines thepoint that the symbolic effect of consistent and encompassing electric vehicle incentives is important and goesbeyond the economic and practical benefits that they foster.

23

4. The impact on the distribution and transmission grids
4.1 The transmission grid is strong enough for electric vehicles
The transmission grid is often called the backbone of the electricity system. Compared to the cost of electricity
distribution and generation, electricity transmission represents only a fraction of the final cost of electricity. Yet
given its importance, the long lifetime of the transmission infrastructure, the visual impact and often low social
acceptance for building new transmission lines, the process of transmission capacity planning is an arduous
one. A 100% electrification of the passenger vehicle fleet would add about 6 TWh to the total yearly electricity
consumption in Norway, compared to 130 TWh today and projected 144 TWh in 2050. At Nordic level, a total
electrification of the passenger vehicle fleet would add about 30 TWh per annual. This additional consumption
will raise the need for new transmission capacity. A study, Graabak et.al, 2016 assessed just how muchadditional transmission capacity will be needed if all passenger cars were to be electric by 2050, in line with
Norway's target of completely decarbonizing domestic travel by that year. This study estimated transmission
capacity needs for 2050 based on the Nordic projected electricity consumption and a simplified grid
representation. To evaluate the impact of BEVs, it compared a reference case with no BEVs and two cases witha 100% share of BEVs in the Nordic passenger car fleet.


Reference case; based on the projected electricity consumption for 2050 that foresees a complete
carbon neutrality but excludes BEVs.
Unresponsive charging; includes the extra consumption of the BEVs. It is assumed that vehicles start
charging upon arrival until they are fully charged.
Responsive vehicle charging; Vehicles try to minimize the electricity cost by adjusting the start and endof charging according to the movement of spot market prices.

Figure 4.1 shows the necessary additional Nordic transmission capacity. Case (a) depicts with black full lines theextra capacity with respect to existing and already planned capacity. The difference in the additional capacity
between the cases of unresponsive and responsive charging is shown in case (c). It is significant, but what ismore important is that if vehicles were to respond to market prices, the additional capacity with respect to thereference case would be minor – case (b).
Figure 4.1. Transmission capacity additions in 2050.

24 Position Paper: Decarbonization of transport and the role of electrification.

(a) Reference case(b) Responsive – Reference(c) Unresponsive - Responsive

In fact, as Table 1 shows, with responsive charging the transmission capacity needed would amount to 410 MW
or 4% over the reference case on the connection between Norway and Finland. The transmission capacity
between Norway and Sweden would need an extra 9 MW or 0, 5% over the reference case's 1807 MW,
whereas no additional capacity would be needed between Norway and Denmark or in Norway internally.
Table 1 Transmission capacity requirements in MW.
Norwayinternal

Connection
NorwayFinlandConnection
NorwaySweden

Connection
NorwayDenmark

29825

50

4000

1700

Additional capacity excluding electric
747
vehicles (reference case)

394

1807

0

Additional capacity with unresponsive
1885
charging

408

2305

0

Additional capacity with responsive
747
charging

410

1816

0

Existing and planned capacity

In sum, the Nordic transmission system seems to be quite strong. It will require some interventions to be able
to accommodate the future load growth. Graabak et al. 2016 indicates that a 100% electrification of thepassenger vehicle fleet could entail investments into additional transmission capacity in the order of a few
percent of the existing capacity. The actual amount of required investments can be drastically reduced by
employing smart or coordinated charging technology.

4.2 The major challenge is the distribution grid
A study conducted by Seljeseth et al. (2013) measured the effects of slow and fast charging of electric vehicles
on the distribution networks for six operators. The objective was to identify large voltage deviations, flicker andincreased harmonics due to EV charging. Measurements were carried out for five different vehicles and a poolof 15 vehicles charging simultaneously. Both slow and fast charging did not seem to cause significant issues
with flicker or harmonics, other than flicker appearing as a disturbance in the garage where a vehicle was being
charged. Around 70% of the Low Voltage (LV) distribution system in Norway is type 230 V IT, unlike the morecommon 400 V elsewhere. This results in higher currents and voltage drops when adding BEVs to the network.
The study showed in fact that voltage drops caused by the charging could already represent an issue in a
network approaching its limits.

25

Distribution grids are able to host a certain number of electric vehicles without difficulties. As the share ofelectric vehicles grows, the bottlenecks start to appear at an accelerating pace. According to the Norwegian
Water Resources and Energy Directorate (NVE), one battery electric vehicle for every two households would
add an average of 1 kW to the household peak load causing close to 4% of distribution transformers to beoverloaded, or an almost tripling compared to the current situation. One-battery electric vehicles perhousehold would increase the average peak load of the households by 5 kW and result in more than 31% of
distribution transformers being overloaded.
NVE estimates that 33 billion NOK will be invested in the high voltage distribution and 15 billion NOK in the low
voltage distribution grid in the period 2016-2025. An additional 10 billion NOK will be needed in providing
every consumer with a smart meter by 2019. Herein lies the solution.
As has been demonstrated in other countries, coordinated charging can significantly increase the hosting
capacity of distribution networks. In fact, coordinated or smart charging should be implemented, as its benefits
are considerable at both the distribution and transmission level. Smart meters are enablers of flexible charging.
Combined with a network tariff based on the peak load of the consumer, the distribution overloading will be
alleviated.

26 Position Paper: Decarbonization of transport and the role of electrification.

5. Potential and barriers for hydrogen in future transport
The 2016 white paper on energy policy (Meld. St. 41 (2016-2017), pp. 226-227) states that hydrogen canbecome important as an emission free energy carrier in Norway, both in transport and in stationary energy
supply. The white paper emphasized that hydrogen is a technology where major advances may come within ashort time frame. National Norwegian GHG emissions targets are stated in the Climate Agreement (St. Meld. 34(2006 -2007); Innst. S. nr. 145 (2007–2008)). Reduced emissions in the transport sector will be important toreach these targets. Hydrogen is an emission free energy carrier, when produced by electrolysis using
renewable electricity, and near emission free using natural gas with carbon capture and storage (CCS).
Hydrogen can as such play an important role in the "green shift" as a key part of Norwegian climate policy.

5.1 The demand and potential role of hydrogen in different transport segments
Several studies address the potential for hydrogen in the Norwegian transport sector. The NorWays study(Stiller et al., 2010) illustrates the effect of different parameters on the profitability of hydrogen in competition
with other energy carriers for car use. A study conducted by SINTEF and NTNU in 2016 (Tomasgard et al., 2016)
estimates the potential for future hydrogen demand based on three scenarios with varying assumptions aboutmarket shares of hydrogen vehicles in different transport segments. Funded by major Norwegian cities, thestudy submits input to a national hydrogen strategy, in terms of national policy instruments, the need forinfrastructure, and the potential for hydrogen. Ulleberg et al. (2015) carried out a Norwegian feasibility study
to take a closer look at the opportunities for the use of hydrogen fuel cells ships. The work presents a casestudy on how hydrogen can be cost-effective compared to liquefied natural gas (LNG). The market forhydrogen in the maritime sector can contribute to build infrastructure in harbours and terminals, and thus
have a positive impact on the implementation of hydrogen as an energy carrier in road transport. The use ofhydrogen in the maritime sector in Norway can contribute to increased demand for hydrogen, and thereby
help lower the costs.

5.2 The role of infrastructure – hydrogen fuelling stations
In Tomasgard et al. (2016), total demand for hydrogen within different transport vehicle segments (freight,
passenger cars, taxis, buses and boat/maritime) towards 2030 is calculated for three different scenarios. The
scenarios differ with respect to the assumed growth rates of hydrogen vehicle stocks in the various segments(low, medium and high adoption of hydrogen vehicles). Consequences in terms of the volumes of hydrogenused for each segment and the need for filling stations are then calculated.
The low scenario assumed that there is little or no regulation of investments in hydrogen in fleet vehicles suchas taxis and buses, while the supply of FCEVs remains low, and trucks, either with fuel cells for direct
propulsion or with range extender, account for the largest consumption of hydrogen fuel. Both the medium
and high scenario assume a targeted focus on fleet vehicles in the period up to 2020, where the taxi fleet willcontribute to over half of total consumption until 2020, and along with buses account for more than 80% of
total consumption in the next five years. In these scenarios, other transport segments will take over as the27largest consumers of hydrogen after 2020, and in 2030, the passenger car market will account for
approximately 30-40% of total consumption of hydrogen fuel.

Figure 5.1. Total hydrogen demand (in kg H2/year) for the three scenarios in Tomasgard et al. (2016)

Figure 5.2. Left: Relative consumption of hydrogen in different segments in the medium scenario. Right: Number of filling
stations needed and their utilization ratio. Source: Tomasgard et al. (2016).

It is assumed that hydrogen is produced by local electrolysis. Figure 5.2 presents an estimate of the need forstations and their utilization.

5.3 Policy measures supporting early introduction of hydrogen
Establishing infrastructure for hydrogen fuelling (stations) will be particularly important in the early stages of theintroduction phase. Calculation of costs and profitability of these in Tomasgard et al. (2016) indicates that theinvestment and operation of hydrogen stations will be financially demanding for several years. The main reason
is limited sales of hydrogen per station in an introductory and development phase and therefore modest sales
revenue that would not recover cost if hydrogen is priced competitively. A successful introduction of hydrogenfuel in the transport sector in the next years therefore requires measures that stimulate both the supply side,through the establishment of hydrogen fuelling stations, and the demand side, to ease introduction of FCEVs inthe market.

28 Position Paper: Decarbonization of transport and the role of electrification.

Such measures should only be implemented to support immature technologies under the belief that the longterm benefits in terms of reduced emissions will outweigh the costs of the short-term support. In the case ofhydrogen, implementation today would require both investment support and operational support.
Investment support: The investment support should be organized as a tender or reverse auction. Investment
support can be provided through national schemes, but also through local support in the form of, for example,
cheap or adapted areas for stations.
Operational support: Since the volumes are expected to be small in the early years, the operators of hydrogenstations also need operational support. The first stage of operational support should cover the disadvantage of
having to recover fixed costs at a time when volumes and revenues are modest. The next stage of operational
support should cover the fixed operating costs. These are relevant in a period after the volumes have increased
to the extent that the utilization of each hydrogen station is at a sufficient level, but operating costs are still too
high to defend profitability.
If the objective is to achieve early introduction, we recommend that national authorities in an initial phase be
responsible for investment and operational support for filling stations. This should be followed up at a national
level in terms of policies that stimulate demand. Local means such as zero-emission zones in the city centres
and zero-emission requirements in public procurement policy will effectively stimulate demand, but in manycases favour more mature technologies than hydrogen. Targeted use of instruments for establishing hydrogenfuelling stations will be susceptible to stimulate rapidly increasing stocks of FCEVs. It would be natural thatdemand for hydrogen fuel in an initial phase is stimulated in the same way as we have seen for the
introduction of BEVs. Tax exemptions and other privileges have proven to work very effectively. We
recommend retaining the tax exemption and current privileges for hydrogen cars, until a number of at least 50
000 such cars are operating on Norwegian roads. As a demand stimulus, Norway's major cities and regional
authorities can play a key role in its regulation and its procurement policy.
A significant barrier to the introduction of hydrogen is uncertainty regarding the number of FCEVs that will beavailable on the market at the 2020 and 2025 horizons. It is likely that a combination of instruments on boththe supply and demand side will be sufficient to make Norway an interesting market for FCEV manufacturers.
Norway has long lacked a national hydrogen strategy, and politically endorsed plans and ambitions for the
introduction of hydrogen as an alternative zero-emission fuel. This has most likely reduced the potential for
Norway becoming an interesting market for FCEV manufacturers. If the purpose is to reduce this uncertainty, it
is crucial to establish a national hydrogen strategy, with quantified targets for the introduction of hydrogen as afuel. A well-developed hydrogen infrastructure in the major cities can turn Norway in to an interesting market
for international suppliers of fuel cell electric vehicles.

29

6. Transition strategies
As one important pillar of exploration, the CenSES and MoZEES Centres for Environmentally Friendly Energy(FME) develop and apply quantitative models of the energy, vehicle and transport markets and theirinteraction. In this chapter, we use three of these models – BIG, REMES and TIMES – to outline somequantitative analyses of the transition strategies that can bring us towards 50% emission reductions in thetransport sector compared to 1990 levels. Some fundamental questions to be addressed are (i) how fast the
GHG emissions from road transport can be expected to come down, (ii) whether and how the energy system
will be able to support such a transition, and (iii) what will be the effects for society in terms of production andwelfare.
We further discuss some of the main hurdles, where further policy needs to be developed, and finally discuss
briefly some of the trends that may change the picture. The main objective of the scenario development
activity is to provide research-driven knowledge and analyses of how a low GHG emission scenario could beachieved for domestic transport in Norway within 2030.

6.1 REMES and TIMES scenarios for 50% emission reductions
NTNU and IFE have linked the regional economic model REMES with the energy system models TIMES. This
provided an opportunity to study what types of technology scenarios that would be compatible with a 50%
reduction in greenhouse gas emissions in the transport sector before 2030, and what kind of welfare anddistribution effects such a technology switch would have (Helgesen et al., 2017). Figure 6.1 shows four
different technology mixes denoted exog, bau, co2 and co2k that result from varying underlying assumptions.
Here the most interesting one is co2k, where the 50% emission constraint is enforced, and the households’
capital is adjusted to reflect the increased investments as compared to business-as-usual (bau) without CO2
restrictions. The co2k scenario reduces GHG emissions by 50% from the Norwegian transport sector ascompared to 1990. The target is reached by making technology investments in FCEVs as well as in BEVs. In the(co2) scenario, the analysis naively assumes that investments in emission reductions in the energy systemmodel do not affect capital growth REMES. In (exog) energy service demand is given exogenously to TIMES
from a national projection, and this is included for reference.
The considerable technology investments needed to achieve a 50% reduction in GHG emissions consume
capital and limit the capital stock growth, decreasing the value of total production in 2030 by 2.8 per cent. The
decrease in household welfare corresponds to a 6.5 per cent salary reduction. We see that all transport
segments experience substantial reductions in this scenario but should particularly note the dramatic effects
for road transport, where emissions are reduced to approximately 1.5 million tons (coming mainly from long
distance trucks).

30 Position Paper: Decarbonization of transport and the role of electrification.

Figure 6.1. Total transport investments comparing the CO2 constrained scenarios with the bau scenario (H2FC = hydrogenfuel cell, HD = heavy duty, LD = light duty, L = long distance and S = short distance). Source: Helgesen et al. (2017). Some ofthe effects on different segments are shown in Fig. 6.2.

Figure 6.2. CO2 emissions from transport in 2030, comparing the CO2-constrained scenarios with the bau scenario. Based onHelgesen et al. (2017).

6.2 Vehicle fleet projections
The BIG stock-flow model of the Norwegian motor vehicle fleet gives another perspective. Developed by TØI,the model constitutes a uniquely detailed accounting framework forecasting the fleet onto the 2050 horizon
and beyond. Projecting year-by-year changes in the fleet of vehicles in each of seven categories, each cross31

classified by age, energy technology and weight, the model produces output in the form of segmented vehicle
stocks, vehicle kilometres travelled, ton kilometres transported, energy consumed (by energy carrier), and CO2
emissions. The main input consists in segmented flows of new vehicles registered in each calendar year. For theflow of new passenger cars, a generic discrete choice model has been estimated (Østli et al. 2017), linking the
car customers’ choice of vehicle model to (changes in) fuel and vehicle taxation.
Relying on this accounting framework, Fridstrøm & Østli (2016) developed several scenario projections onto
the 2050 horizon. Their ‘ultra-low emissions’ (ULE) scenario is roughly consistent with the government’s target
for the market uptake of zero emission vehicles by 2025 and 2030 (Fig. 6.3).

Fig. 6.3. Annual flow of new passenger cars, by energy technology, under ultra-low emission scenario. Source: Fridstrøm &Østli (2016).

Fig. 6.4. Their less demanding ‘trend’ scenario, on the other hand, is essentially an extrapolation of the market developments
observed during 2010-2016.

32 Position Paper: Decarbonization of transport and the role of electrification.

Fig. 6.4 Observed and projected flow of new passenger cars, by energy technology. Trend path extrapolated from2010-2015. Source: Fridstrøm & Østli (2016).

Under the highly optimistic assumptions implicit in the ULE scenario, CO2 emissions from the Norwegian motor
vehicle fleet could drop by 45 per cent between 2015 and 2030, before taking account of a possibly increased
biofuel share (Fig. 6.5).

Fig. 6.5. Projected metric tons of annual CO2 emissions from Norwegian road transport under ultra-low emission scenario,
by vehicle category. Emissions from biofuel combustion are included. Source: Fridstrøm & Østli (2016).

This is not to say that large cuts in emissions will come easy. There is a risk that such downward-bending
emission curves be misinterpreted as prophecies, in which case they might give rise to complacency rather

33

than to effective policy intervention. It remains an open question if there are policy instruments strong enoughto induce vehicle customers to behave as presumed in the ULE policy scenario.
Under the less radical assumption that the market trends of the near past continue, the BIG model projections
suggest a 21 per cent reduction in GHG emissions from Norwegian road transport between 2015 and 2030,
before biofuel effects (Fig. 6.6).

Fig. 6.6. Projected metric tons of annual CO2 emissions from Norwegian road transport under trend scenario, by vehicle
category. Emissions from biofuel combustion are included. Source: Fridstrøm & Østli (2016).

Fig. 6.7. Projected energy consumption in road transport under ultra-low emission policy path, by energy carrier. Biofuel
combustion is included. Campervans, motorhomes and combined passenger/freight vehicles are left out. Source: Fridstrøm& Østli (2016).

34 Position Paper: Decarbonization of transport and the role of electrification.

As evidenced by the BIG stock-flow model, there is considerable inertia in vehicle fleet developments. It may
take 5 to 15 years before innovations affecting the flow of new vehicles have penetrated similarly into thestock (Fridstrøm 2017a). This time lag would depend on the velocity of vehicle fleet turnover, on the target
level of penetration, and on the speed and steadiness of the technological diffusion process.
In Fig. 6.7. we show the development of the energy mix in road transport in the ULE scenario. The share of zero
emission technologies – hydrogen and electricity – is projected to grow from 0.35 per cent in 2015 to 26 percent in 2030 and 89 per cent in 2050. The electricity consumption of light duty BEVs comes out at 8.4 TWh in
2050, while hydrogen driven HDVs require an estimated 14.9 TWh of electricity, if hydrogen is to be produced
through water electrolysis. Taken together, these consumption figures correspond to around 17 per cent ofpresent-day annual hydropower output in Norway. At the same time, road users will save around 4 billion litresof liquid fuel annually, with an energy content of around 37 TWh.

6.3 Main challenges
Based on the studies above we have identified some main challenges in decarbonizing strategies for thetransport sector.
Road transport towards zero emission
Road transport will play a major role in decarbonization towards 2030. If the transport sector as a whole wereto reduce emissions by 50%, road transport would most likely have to take a higher share than the othersegments. While the REMES/TIMES analysis show that this would be possible from a technology and energy
perspective, it would presuppose a dramatic transformation of the vehicle fleet. While today’s support
schemes seem to be efficient as a market stimulus, they would not be sufficient to achieve such a dramaticchange alone. Enhanced use of fiscal and regulatory measures as well as support for biofuels, hydrogentechnologies and infrastructure would be needed in addition.
A special focus would be needed for long-haul freight. Looking at the statistics and literature from the period
1993-2013 we can conclude that systematic policies aimed at achieving reductions in energy use or GHG
emissions from road freight transport have only to a very limited degree been implemented in Norway, withthe exception of biofuel regulations and increased railway investment. Apparently, the market potential fortransferring freight from road to rail is very limited indeed (Marskar et al. 2015).
Nor have we been able to detect any important autonomous technological changes that might substantiallycontribute in the same direction—although average load factors have improved slightly (Walnum et al. 2015),
and road freight vehicles are becoming steadily larger and hence more energy efficient as reckoned per ton
kilometre (Fridstrøm 2017b). The volume of freight transport and the accompanying energy use and GHG
emissions have increased (confer Figs. 2.1 and 2.3, Walnum and Aall 2016, Walnum et al. 2015).
International air travel by Norwegians
International air travel by Norwegian residents is not included in official GHG emissions, which is based on ageographical approach to responsibility for emissions, in which all emissions generated by economic activities
within a country’s territory are included in the total emissions for that country. Hille (2015) estimated thatplane travel abroad by Norwegian residents corresponded to 24 billion passenger-kilometres (pkm) in 2006 and35

grew by 37% to 32.96 billion pkm by 2013. A recent study found that when all transport activities by
Norwegians, both domestic and abroad, were estimated for their absolute global change potential per unit ofemission in a 50-year time period (AGTP 50), Norwegians’ air travel abroad represented 51%, compared to 39%
for the car mode (Aamaas and Peters, 2017). This reflects the fact that air travel abroad is the fastest growing
transport segment for Norwegians, and even in the short term has the highest share of GHG emissions.
Production and welfare effects
The TIMES/REMES studies show that the energy transition in the transport sector will have a negative effectboth on the national output and on aggregate welfare. The fulfilment of Norway’s climate policy obligations
comes at a cost. To the extent that GHG mitigation is considered a political imperative, the relevant policyquestion is not whether the energy transition represents a first-best economic improvement, but whether
there are other second-best policy options available that will achieve the mitigation goals at a lower social cost.

6.4 The impacts of new trends in mobility
Various chapters in this report highlight the complexity of interrelationships between GHG emissions, energyuse, car ownership and transport behaviour. Given these interrelationships, it has been argued that the mostimportant principle to reduce transport demand is ‘non-ownership of cars’ (Gilbert and Perl 2008). Where
people do not have access to a private car, transport volumes will decline. This is because much transport
behaviour is “script-based” and impulsive (Gärling and Axhausen 2003), with strong evidence that transport
choices can be influenced in favour of bicycle and public transport, particularly in city contexts (Buehler et al.
2017; Pucher and Buehler 2012). Such interventions are supported by various trends. Some of these are briefly
discussed below; it deserves to be noted, however, that these have relevance mostly concerning urban
passenger transport, and they do not themselves constitute evidence of changes in overall transport demand.
Changes in driver’s license penetration
The trend of declining driver’s license penetration among younger people was first discovered in Sweden and
Norway in the late 1990s, where Berg (2001) found a decline in license holding among young adults by over
10% between the mid-1980s and the late 1990s. Sivak and Shoettle (2012) later on found, for the period 19912009, that license holding among 18-34-year olds in Norway had declined from 58-89% to 40-76%, dependingon age bracket (18, 19, 20-24 or 25-34). Similar trends have been noted even in France, Germany, and Australia(Delbosc and Currie 2013; Kuhnimhof et al. 2013).
Note, however, that aggregate license holding across all age groups in Norway keeps mounting (Fridstrøm2018), and that license holding among Norwegian 18-year-olds has increased every year since 2007 (Nordbakke
et al. 2016), thus reversing the trend towards lower license penetration among the young.
An important question is whether future automated cars will make it unnecessary to have a driver’s license. Ifyes, car use will become available to new groups of travellers, possibly contributing further to the growth in car
use demand.

36 Position Paper: Decarbonization of transport and the role of electrification.

City cycling
In many areas, cycling is experiencing rapid growth, most notably in European cities, but even in various
developing countries (Pucher et al. 2010). Statistically, the city of Groningen in the Netherlands appears to beleading this development, with cycling representing more than 60% of all trips (The Guardian 2016). In
Copenhagen, bicycling represents around 50% (Gössling 2013). In Norwegian cities, cycling shares hover
between 4 and 9 % (Hjorthol et al. 2014, Lunke et al. 2017). With various measures in place to increase cycling
shares in Norwegian cities, there is a likelihood of cycling becoming more widespread. Cycling levels are largely
dependent on bicycle infrastructure and perceived safety, and often supported socio-culturally by changes inperceptions of the desirability of working out for better health. Many cities pro-actively support cycling to easedensity problems. Overall, for reasons rooted in climate and topography, city cycling may have more limited
importance in Norway than elsewhere, although electric bikes have the potential to overcome the topographybarrier.
Information and communication technology (ICT)
Applications have made public transport far more navigable. In particular smartphone applications help toaccess travel information (departure times, cost), intermodal connection (tram, train, subway, bus, rental
bikes, car sharing), and payment. Advanced apps already include delay control and crowding indicators. Public
transport is also increasingly well-adjusted to passenger expectations, with many buses or trains now offering
wireless Internet access, usually free of charge (Gössling 2017a). ICT is also behind novel approaches to bicycle
sharing, such as the ‘ofo’ bikes (www.ofo.com), representing commercial approaches to bicycle sharing, basedon very low fees and free floating, as these bikes can be left anywhere after the rental period. Even car sharing
is important in terms of the contribution it makes to non-car ownership principles. In 2010, car-sharing systems
were already available in 1100 cities in 26 countries (Shaheen and Cohen, 2013), and most large cities in
Europe now have several competing car-sharing operators. Apps facilitate reservations, billing, and electronic
keys. Where cities systematically reallocate parking spaces to car-sharing programs, on a citywide basis, thiscan push rental systems (Gössling 2017b).
While car-sharing schemes are susceptible to reduce car use within families that would otherwise possess theirown private car, they also serve to make cars available to a larger number of families, and at a lower fixed cost.
It is therefore an open question whether aggregate automobile use will increase or decrease with the
expansion of car sharing schemes.
Automation
Automated vehicles are largely understood as mobility game changers. They can transform automotive systems
in two general directions, depending on whether vehicles continue to be privately owned or if these operate
out of pools, i.e. as offers of mobility as a service. In the former scenario, individuals continue to own vehicles
that can now drive and navigate by themselves. This is a scenario favoured by the car industry, which is alsosuggesting that cars will be able to more efficiently use road space (safety distances) and become accident
avoidant. However, in this scenario, problems of resource use to build cars, energy consumption, spacerequirements, and particulate matter pollution from brake pads, pavement and tires will continue to haverelevance for the sustainability of transport systems. Notably, in this scenario, there would also be considerable
rebound effects in terms of transport demand (Gössling 2017b). Unregulated private access to autonomous
cars could increase the transport volumes as measured in vehicle kilometres, if not in person kilometres. If the37car can bring its owner to the job and then return on its own, the parking barrier against commuting by car has
been overcome, resulting in drastically reduced occupancy rates and increased traffic flows and congestion,
especially during rush hours. Moreover, in autonomous cars, drivers would be able to spend their time on
something else than driving, thus neutralizing the most important competitive advantage presently held by
public transport means.
The alternative scenario is one where cars are no longer privately owned, but ordered on demand, either as arobotized taxi, or as a pool version in which rides are shared between several passengers. In both cases, costs
are likely to come down, primarily because the drivers’ payroll could be reduced to almost zero. In principle,
this could make some 70% of all cars redundant. In cities, larger shares of transport needs are covered bybicycles, while public transport opportunities have been developed and become more attractive. Longer
distances are also covered by public transport or rented cars.
Whether such a scenario transforming mobility into a service is desirable for larger parts of the population, andwill be politically supported, is currently unclear. Developments somewhere between the two most extreme
scenarios may seem like the most likely outcome.
The underlying logic of exploration is rather clear, however: vehicle services as such may be provided at alower cost (construction, energy, parking) as ICT and automation facilitate that vehicles are used more
intensively (more than an hour per day, more than 1.2 passenger kilometres per vehicle kilometre). Thus,
vehicles that are less idle can be built better. As an illustration, assume that an electric car costs NOK
50 thousand more to build. Used an hour per day, it can be unaffordable even though it costs less to use. But it
can be eminently affordable if it serves more households and is used more hours.

38 Position Paper: Decarbonization of transport and the role of electrification.

7. Discussion and policy implications
7.1 Five general strategies
Greenhouse gas emissions from transport can be cut in five different ways:
6. Reduced economic activity (GDP) and standard of living, resulting in reduced transport demand
7. Reduced mobility of people and goods at all income levels
8. Transfer of travel and freight to less carbon intensive modes
9. Improved energy efficiency of vehicles, vessels and craft
10. Transition to less carbon intensive energy carriers
Option 1 is unattractive to the extent of being politically infeasible in democratic societies. To obtain a one percent cut in Norwegian GHG emissions through a proportional (i.e., one per cent) cut in GDP, the cost in termsof foregone value added would amount to around NOK 62 000 per ton of CO2 equivalents (tCO2e). A middle-ofthe-road estimate of the marginal global damage cost of GHG emissions is, by comparison, in the order of NOK
450 per tCO2e (NOU 2015:15), and the current (April 13, 2018) price of emission allowances in EU ETS isapproximately NOK 130 per tCO2e.
Option 2 runs counter to the very ideas of trade, integration, freedom of movement and division of labour –the generally acknowledged, fundamental recipes for economic growth and wellbeing. Hence, the European
Commission categorically rejects this avenue as a workable possibility.
Some versions of option 2, however, do not necessarily detract from economic efficiency or welfare. Smarturban planning and regulation may reduce the distances between key points of attraction and pave the groundfor competitive public transport, bicycling and walking. The long-term difference in energy use and GHG
emissions between a dense city and an urban sprawl is vast. In the short and medium term, however, the GHG
abatement potential of this strategy is limited, as it takes time to reshape a city and its land use.
In essence, this leaves us with decarbonization as the sine qua non of GHG abatement policies in the transport
sector. The question is how such transition can be brought about. This is the topic of the present position
paper.
Option 3, understood as a transfer from gasoline and diesel driven vehicles to electrically powered railtransport, to bicycling and walking, or to buses and coaches powered by biogas, hydrogen, batteries or trolleylines, will indeed amount to a de facto decarbonization of transport and hence contribute to a reduction in
GHG emissions. It probably also implies energy conservation, since electric motors are much more energy
efficient than internal combustion engines (ICEs). Even diesel driven buses and coaches may represent an
improvement compared to the private car, since – depending on occupancy rates – they tend to consume lessenergy per passenger kilometre.
However, the GHG abatement potential of this strategy is constrained by the low degree of intermodal
competition, which is more limited than commonly assumed – in the freight as well as in the travel market.
Very powerful incentives are needed in order to change the modal split in a way that really makes a difference.
This is true in sparsely populated Norway more than almost anywhere else. No EU or EFTA country exhibits alower share of public transport and a higher share of private car use than Norway. Bicycling is also relatively
infrequent – deterred by weather and topography.
39

Options 4 and 5, on the other hand, offer many opportunities that are only beginning to be exploited. Bothoptions imply technological transition in one form or another. To achieve Norway’s GHG mitigation goals, it isessential that policy makers put their main emphasis on strategies to support technological innovation. Only amassive substitution of zero and low emission vehicles and vessels for conventional ICE technology could bringabout emissions cuts of the order needed to meet the national mitigation goals.
The main challenge for policy makers is to identify and implement the most effective policy instruments andstrategies. Technological advances are not sufficient in themselves. Equally important are their successful
introduction into the market. Transport operators, shippers, clients, public agencies, households andindividuals must see it in their interest to opt for climate friendly modes of operation. The adoption of new, lowor zero emission technologies must become profitable – if necessary by means of government incentives andregulation.
In searching for effective GHG abatement measures, policy makers should be aware of the need to avoid
unfavourable technological lock-in effects. Strategies that seem expedient in the short or medium term mayturn out to hamper or delay a more fundamental transition needed for long-term carbon neutrality, sinceassets such as vehicles, vessels and infrastructure may have a service life stretching across several decades.
To minimize the risk of lock-in effects and other developments adverse to the attainment of carbon neutrality,
it is generally thought that incentives and regulations ought to be technology neutral. Manufacturers exposedto the test of the market are better prepared for the necessary risk assessment than any government agency.
If possible, fiscal and regulatory instruments should be directed towards the very aim of the policy itself rather
than towards some intermediary or subsequent circumstance. If, e.g., the goal is to minimize CO2 emissions,
one should tax the emissions themselves rather than a particular kind of technology, which may or may not
become carbon neutral in the near or more distant future.
In some – not so rare – cases, however, the positive network externalities of a new technology are large
enough to warrant government intervention to ease market introduction. Zero emission vehicle technology is acase in point. Battery and fuel cell electric vehicles will continue to be considerably more expensive thanconventional ICE vehicles until their manufacturing has reached comparable economies of scope and scale. In
addition, the network infrastructure needed to serve these vehicles is bound to be commercially unprofitablein the start-up phase, which is why government subsidies and regulations to stimulate its rollout areeconomically well founded.
To minimize the risk run by early movers in the technology transition, and hence encourage their initiatives,
predictability is key. Policy makers should be consistent in their signals to market, announcing changes in thepolicy framework with a maximum possible lead. This is not to say that, when new information emerges,
policies cannot be changed – they should.
The instruments available to public policy makers are quite diverse. One could distinguish between (i) fiscal
instruments, (ii) regulatory measures, (iii) public investment and procurement, (iv) organizational andinstitutional measures and (v) communication and control.

40 Position Paper: Decarbonization of transport and the role of electrification.

7.2 Fiscal instruments
Among the fiscal measures available, the CO2-graduated one-off vehicle purchase tax for passenger cars, with
its exemption for zero emission vehicles, stands out as remarkably effective. Another forceful measure is the
ZEVs’ exemption from value added tax (VAT). For freight vehicles up to 7.5 tons, however, the tax rate is too
low to provide a forceful incentive, and the VAT exemption is without importance, since most buyers are VAT
registered companies. The heavy-duty freight vehicles are not subject to purchase tax at all.
The fuel tax consists of a CO2 component and a road use component. The CO2 component has been set inaccordance with international estimates of the global damage cost. The road use component, on the other
hand, is quite inadequate, in that it does not at all reflect how the marginal external costs of road use vary
widely in space and time, as well as with vehicle characteristics. Of course, the behavioural response of
consumers depends on the sum of the two fuel tax components, without regard to how each of the two islabelled. Even so, the price elasticity of demand for fuel is too low for the fuel tax to provide a forceful
instrument for GHG abatement.
Liquid biofuel sales in excess of the mandatory minimum share (10 per cent in 2018) are exempt of fuel tax.
Biofuel incentives make sense in the short and medium term, since it will take time before vehicle fleets andenergy infrastructure have been renewed. Increased use of biofuel, in contrast, has an immediate effect on the
GHG emission accounts. This goes to illustrate the merit of technology neutral policies: When powered by
biofuel, ICE vehicles are not as harmful to the climate as when they run on fossil fuel. A policy that rules out theuse of that particular technology – ICE – may not be the fastest or most efficient pathway to the low carbon
society. The term ‘fossil cars’ is meaningless, since modern cars run as well on renewable fuel as on its fossilcounterpart.
Road pricing and tolling constitute a third category of fiscal instruments. As traditionally practiced in Norway,
tolling is very different from the optimal form of marginal cost road pricing favoured by economists. While thelatter corrects the behaviour of road users in the direction of maximum welfare, the former, as applied touncongested highways, tunnels and bridges, gives rise to a deadweight loss that reduces the benefit of theinvestment. In recent years, several cordon toll rings have introduced differentiated rates – a small step in the
direction of marginal cost pricing. Zero emission vehicles are generally exempt of toll – a powerful incentive
towards vehicle electrification in certain communities.
A possible future system – for instance satellite based – for general road pricing, can incorporate the multiple
purposes for present tolls, fuel taxes and annual circulation taxes:(i) A vastly more correct internalization of the road users’ external costs (road wear, congestion, air pollution,
noise, accidents);(ii) Elimination of the deadweight loss following from of fixed-point tolling on uncongested roads,(iii) Government revenue(iv) An opportunity to create sufficient incentives to make light and heavy-duty freight vehicle owners invest inzero or low emission technology, and to make these incentives sensitive to local conditions.
Finally, a very important system of economic incentives bearing indirectly upon the road transport sector is theEuropean Union’s Emissions Trading System (EU ETS). All electrically driven means of transport are, in a sense,41

covered by the ETS, since all power plants above 20 MW effect are. Trivially, this means that the GHG emission
from an extra train or metro departure is zero. More interestingly, it also applies to battery electric cars. If theentire vehicle fleet has been electrified, a most important national source of emission has been moved into the
cap-and-trade system. Hence, the climate relevant emission from the operation of an electric vehicle is zero.

7.3 Regulatory measures
The biofuel regulation requires fuel providers to sell a minimum of 10 per cent biofuel during 2018, of which atleast 4 per cent is to be suited for gasoline engines and a minimum of 3.5 per cent is to be so called ‘advanced’
biofuel fulfilling certain criteria of sustainability. By gradually raising the mandatory biofuel share, thegovernment will be able to ensure a certain decrease in accountable GHG emissions from transport.
A certain percentage of first-generation biofuel, such as the well-known fatty acid methyl ester (FAME) often
produced from rapeseed, can be blended into fossil diesel without impairing or harming the operation of theengine. Second generation biofuels, such as hydrogenated vegetable oil (HVO), are usually pure enough to be
used in diesel engines without any blending with fossil fuel.
While the use of biofuels in ICE vehicles has an immediate effect on the GHG emission accounts in the
Norwegian transport sector and may even be needed to reach a target of 50% emission reductions, the global
emission reduction effects depend heavily on how and where the biofuels are produced. Hence, a focus on thesustainability and actual global GHG emissions of the biofuels used in the coming years is critical if the expectedclimate effects are to be achieved. This can be managed mainly by regulatory measures.
Low emissions zones are becoming common in many European cities. Although their purpose is to combat local
air pollution rather than to reduce GHG emissions, the latter may follow as a collateral effect, when residents
convert to public transport, bicycling or battery electric vehicles. Strict parking regulations may have similareffects.

7.4 Public investment and procurement
Through its role in public procurement and infrastructure provision, the government has a powerful set of
instruments at its hands. In Norway, more often than not, public transport companies run their business undera tendered contract with the local, regional or national government. The same applies to the air routes
operated as part of a carrier’s ‘public service obligation’ (PSO).
The government can exploit its monopsony position to lay down mandatory environmental standards ofoperation. Bus operators may be required to provide a certain share of emission free vehicles or to satisfy
certain maximum levels of aggregate exhaust emissions. Ferry operators may be encouraged to use low or zero
emission vessels. In the not so distant future, air carriers may be asked to use low emission craft or fuel.
These regulatory measures may give rise to non-negligible GHG emission cuts. There is, however, a pitfall. If theduration of the contract is much shorter than the service life of the assets acquired by the operator, the next
round of tendering, involving sharpened environmental requirements, may result in a lot of stranded assets –42 Position Paper: Decarbonization of transport and the role of electrification.

buses and ferries than can no longer be used or sold. In a global life cycle assessment (LCA) perspective, this ishardly a desirable outcome.
Another potential improvement with a bearing on modal split and GHG emissions is the conversion from grosscost to net-cost contracts. As of today, most public transport tenders in Norway are for gross-cost contracts, inwhich the operator accepts to service the route for a given amount of money, covering the operator’s grosscost. The ticket revenue collected belongs to the public authority. In this case, the operator has no incentive toincrease ridership. In a net-cost contract, however, the operator keeps the revenue and has every incentive tosatisfy his customers and attract additional ones. The operator will therefore strive to enhance the quality of
his supply, improving his competitive position versus the private car.
Even more important than public procurement is public investment. The government funds and decides theprovisions of road, rail, coastal and aviation infrastructure. By allowing climate and environmental concerns tobear on the decisions made, the government can make a big difference towards the long-term goal of carbon
neutrality. Climate assessment studies should identify and estimate the GHG abatement consequences of therespective investment options on the table.
As cities, municipalities, counties and other public bodies are considering priorities for local and global
environmental goals in their procurement and concessions, improvements along several lines will become
more pressing. One such is the trade-off between professionalization, standardization and stability on the one
hand, and local conditions on the other. As an example, counties ambitious in CO2-lean concessions (ferries,
buses), see these as hard to justify, in part because CO2 is not taxed in marine diesel, in part because positive
spill overs offered by technological advances and demonstrations will not necessarily pay off to the region.
The three government agencies covering road, rail and coastal shipping all have climate and environmental
goals written into their programs. Considering the fact that more than half the climate footprint stemmingfrom Norwegian citizens’ travel behaviour is due to aviation, domestic and international, it seems paradoxicalthat Avinor, as the only government transportation agency, is pursuing a growth target that takes precedence
over the GHG mitigation objective. This growth target translates into an investment proposal for a third runway
at Oslo airport Gardermoen.
For transportation, a most important investment area in the decades ahead will be the power grid. Massive
electrification of the vehicle fleet will lead to increased demand for electric power as measured in TWh per
annum. Previous studies have concluded that this aggregate increase in demand is entirely manageable for the
Norwegian energy supply system. More critically, the simultaneous recharging of millions of vehicles may strain
the distribution grid beyond its present capacity. To successfully realize the energy transition foreseen intransportation, substantial investment will be required in the power sector. Local grids will have to bestrengthened, and smarter systems of demand management will have to be implemented to shave off thepeaks in electricity demand and possibly even exploit the energy storage capacity of vehicles through vehicleto-grid (V2G) systems of power exchange.

7.5 Organizational and institutional measures
Transport and communication are network industries. Interestingly, the various sectors of transport andcommunication in Norway are all regulated and organized in different ways. Suffice it to mention the rail sector
43and the mobile telephone sector. In the latter case, the dominant company, Telenor, owns and operates its
own network, however on the explicit condition that competitors be allowed to sell services in Telenor’s
network, having bought access to it at wholesale prices regulated by the Norwegian Communications Authority(Nkom). Behind this regulation is the recognition that, for a network company to have sufficient incentives forinvestment and innovation, they must be able to reap at least part of its benefit by selling services delivered by
the network. In the rail sector, in contrast, vertical separation is the rule, severing the economic link between
the network and the services produced, and ridding the infrastructure company of all financial incentives toprovide high quality services. This probably helps explain how the vast investments to construct double track
railway lines in the outer parts of the so-called Intercity Triangle around Oslo can continue, without regard to
the fact that no more trains can operate on these tracks until the bottleneck formed by the railway tunnel
through Oslo has been removed.
The present tendering of contracts within rail service production seems to rely on the misconception that railtransport be a separate, relevant market, within which one must ensure competition, while in reality, for mostorigin-destination pairs, the market consists of rail, road, sea and/or air transport competing with each other.
For the rail sector to become a more powerful instrument in climate and environmental policies, the present
degree of fragmentation and separation would have to be replaced by a strong, competitive and fully
integrated national rail company, regulated and privatized in ways similar to Telenor.

7.6 Communication and control
Government leadership and advocacy may help raise awareness and provide understanding for the need for
effective climate policy action. Information campaigns directed towards the public are another well-known
instrument of publicity and public outreach. The behavioural effects of such campaigns are, however, according
to multiple research studies, quite limited. In general, one cannot achieve the GHG mitigation goals by
appealing to the conscience and good will of the individual citizen. Only measures taken at the collective,
political level, inducing large numbers of individuals and businesses to move in the same, climate friendly
direction, have the potential to make a significant difference. However, certain measures of communicationand control could make a non-negligible contribution. Suffice it to mention climate legislation and carbon
budgeting and monitoring.

7.7 First-best vs. second-best policies
The public debate on climate and environmental policies is obfuscated by the fact that different actors havedifferent interests, perspectives and agendas. A more fruitful and scientifically founded discourse could beaccomplished if the actors would agree on the objectives to be pursued, or at least agree to keep thearguments about political goals separate from those pertaining to the choice of instruments. Given theobjective, the most effective choice of policy means would, at least in principle, be an empirically researchable
question. However, when ends and means are continually meddled together, opinions can hardly be subjectedto the test of contradiction in such a way as to sort out the most tenable and relevant arguments and arrive, inthe end, at a consensus about policymaking.

44 Position Paper: Decarbonization of transport and the role of electrification.

Economists instinctively consider policymaking in light of their theory of first-best welfare maximization.
According to this tenet, an external cost should ideally be internalized by a tax corresponding exactly to themarginal damage caused by the single decision maker. A higher or lower tax than this leads to a welfare loss, i.
e. to a deviation from the most efficient (first-best) resource allocation. Economists sometimes argue aboutclimate policy options in general and transport policy in particular as if it is derived from a goal of maximizing
welfare.
However, when the Parliament has decided on policy objectives in line with the Paris accord and the climateagreement between Norway and the European Union, this means that the first-best economic solution has
already been discarded. Democracy has opted for a constraint on welfare maximisation. For Norwegiantransport policy, the political imperative will be to reduce emissions by at least 50% in 2030. The policy
challenge is no longer to find a path towards first-best economic resource allocation, but rather to identify thesecond-best combination of policy measures which obeys the constraint, achieving the mitigation goals at
minimum economic cost.
We believe that the climate policy discourse would benefit from all participants’ distinguishing clearly andexplicitly between ends and means, i. e. between goal setting and the choice of policy instruments.

45

8. Recommendations
The CenSES and MoZEES centres of excellence on environment-friendly energy take the position that the goalsof the climate and environmental policy should be determined by our system of representative democracy
rather than by special groups of interest or by advocates of particular scientific approaches. Despite their
distinctive insights, engineers, economists, physicists or climatologists, to name a few, are in no position toprevail upon the democratic process of goal setting.
One of the most important decisions by the government is to link Norwegian climate policy to EU climate
policy. This means that the Norwegian sectors outside the EU ETS most likely need to reduce emissions by 40%
before 2030. In practice, as also reflected in the NTP (2017), this means that the transport sector emissions
need to be reduced by at least 50% before 2030 relative to today (8.5 million tons CO2 equivalents). Norway iscommitted to this goal, while also ensuring quality of life, maintaining welfare and economic growth. This
report has discussed these challenges based on research.
Transfer of travel and freight to less carbon intensive modes will not be sufficient to achieve the ambitious
target of 50% emission reduction in the Norwegian transport sector by 2030. Hence, it is important to continue
and strengthen current policies towards:


Improved energy efficiency of vehicles, vessels and craft
Transition to less carbon intensive energy carriers

Actions that would support such strategy:
1) The CO2-graduated one-off vehicle purchase tax for passenger cars, with its exemption for zero
emission vehicles, stands out as remarkably effective. Another important measure is the corresponding
exemption from value added tax (VAT). We recommend to further support transition to BEVs and
FCEVs by favouring them using fiscal tools, adjusting rates as necessary.
2) We recommend regulation to ensure that necessary biofuels are produced sustainably.
3) We recommend local government to play a major role in the transition, enhanced by national policies,
taking account of the interaction with their local environmental priorities (low emissions zones,
ambitious policies for public procurement and public investment in the transport sector).
4) We recommend the government to formulate strong GHG mitigation objectives for Avinor, in line withthose set for other government transportation agencies.
5) In sea freight, we recommend a strategy distinguishing coastal from deep sea shipping, where theformer allows more radical approaches (like zero-emission ferries), and the latter must focus on the
demands of a globally competitive market for transport services. In both, global influence is a guiding
motivation.
6) We recommend efforts towards a system for satellite based general road pricing (from the present
tolls, fuel taxes and annual circulation taxes).
Finally, to minimize the risk run by early movers in the technology transition, and hence encourage theirinitiatives, predictability is key. We recommend policy makers to be consistent in their signals to the market,
announcing changes in the policy framework with a maximum possible lead.

46 Position Paper: Decarbonization of transport and the role of electrification.

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