Reduced Incentives for Electric Vehicle Ownership

driving in reykjavík

The government has revoked the VAT exemption for electric vehicles and introduced a new per-kilometre charge, affecting electric, plug-in hybrid, and hydrogen vehicles. Despite these changes, driving an electric vehicle will remain cheaper than operating petrol or diesel cars, according to government calculations.

Reduced incentives

As reported by RÚV yesterday, half of the cars sold in Iceland last year were electric vehicles – and that proportion exceeded 90% if cars sold to rental companies are excluded from statistics. Among the appeal of electric and hybrid vehicles to consumers are financial incentives. 

At the start of this new year, however, the costs associated with electric vehicles underwent significant changes. The government decided, for instance, to end the value-added tax exemption previously granted to electric vehicles. (This exemption amounted to a maximum of ISK 1.32 million [$9,600/€8,800].)

As noted in an article in Viðskiptablaðið from last year, incentives for purchasing electric vehicles were introduced in 2012 in the form of value-added tax exemptions: “… They carried no excise duties, unlike internal combustion engine vehicles, which were subject to excise duties ranging from 30 to 45% at registration, on top of which the value-added tax was then applied.”

Buyers may now, however, apply for a tax-free grant of ISK 400,000 to 900,000 [$2,900-6,500/€2,700-6,000] from the Energy Fund for the purchase of an electric vehicle. As noted by RÚV, the amount of the grant varies, based, among other things, on the age of the car. No grant will be given for passenger cars costing more than ISK 10 million [$72,600/€66,400].

Per-kilometre charge introduced

In addition to the revocation of the VAT exemption, a new per-kilometre charge for electric, plug-in hybrid, and hydrogen vehicles was formally adopted at the beginning of this year. This fee amounts to 6 króna per kilometre for electric and hydrogen vehicles and 2 króna per kilometre for plug-in hybrids.

As noted on Vegir okkar allra – a government website outlining the new per-kilometre fee system – based on an annual average driving distance of 14,000 kilometres (the national average for private vehicles), electric car owners can expect to pay ISK 7,000 per month [$51/€46] in kilometre charges, amounting to ISK 84,000 [$610/€557] annually. 

Furthermore, at least once a year, starting at the beginning of 2024, owners of electric, plug-in hybrid, and hydrogen vehicles must track and record their vehicle’s mileage on the website or app Í The kilometre charge will be paid monthly, “similarly to how payments are made for electricity and other utility services,” the website notes. Owners must register a reading of their odometres by January 20, 2024, or incur an ISK 20,000 [$145/€133] late fee. 

A new system needed

As noted on Vegir okkar allra, the road system in Iceland is primarily funded by excise duties on oil and petrol. However, revenue from these fees is declining as more drivers switch to electric or hybrid vehicles, which contribute less to road financing, and as traditional vehicles become more fuel-efficient. 

The website notes that with the shift towards alternative energy sources, it has become evident that the current funding model has become unsustainable, especially as road maintenance costs rise. Therefore, a new system is being adopted to ensure fair road financing, independent of the vehicle’s energy source.

Next year, the government plans to introduce a kilometre charge for petrol and diesel vehicles, as well. This way, fees will be collected uniformly instead of being levied as fuel taxes on the latter group.

Still cheaper to drive electric

Although vehicle owners are expected to pay a similar amount for the road system regardless of their energy source, driving an electric vehicle will still be cheaper than petrol and diesel vehicles, according to government calculations.

“All things considered, it will be about ISK 160,000 [$1,162/€1,062] more expensive per year to drive an average petrol car compared to an electric car,” the website Vegir okkar allra notes. This includes costs like a carbon tax of about ISK 12,000 [$87/€80] per year and a significantly higher value-added tax, around ISK 46,000 [$334/€305] annually.

Additionally, it is estimated that the annual vehicle taxes for petrol and diesel cars are, on average, about ISK 3,000 [$87/€80] higher than for electric vehicles. The charges paid at petrol pumps are also expected to be slightly higher than the kilometre charge, averaging an additional ISK 3,000 [$87/€80] annually.

Finance Minister Proposes Charge on Clean-Energy Vehicles

driving in reykjavík

The Finance Minister has proposed a six-krona per-kilometre charge on electric and hydrogen vehicles for the upcoming year. A similar charge will be levied on hybrid vehicles. The objective is to increase the revenue of the national treasury and ensure that owners of clean energy vehicles contribute to infrastructure usage costs like other vehicle owners.

Declining tax revenues from clean-energy vehicles

Finance Minister Bjarni Benediktsson proposes a six krona per kilometre charge on electric and hydrogen vehicles for the upcoming year. The aim is to ensure that the owners of such vehicles pay the same fee for the use of roads as the owners of vehicles powered by fossil fuels. The proposal is open to public comment on the government’s consultation portal. The new toll system is expected to come into effect around the turn of the year.

As noted by RÚV, electric vehicle owners have enjoyed certain benefits from authorities in recent years in connection with energy transition plans. However, the proliferation of such vehicles on the roads has led to decreased tax revenues from vehicles and fuel use. The Finance Minister warns that without intervention, these revenues will continue to decline in the coming years. Concurrently, an imbalance has emerged in the current toll system between those utilising the transportation infrastructure.

At the same time, there is a significant need to build and maintain the country’s road network, a plan that is currently in progress. This need is anticipated to persist given the country’s growing population, burgeoning tourism, and related traffic. According to a statement from the ministry, the proposed per-kilometre charge will be applied to each vehicle and collected similarly to how service and energy companies charge for hot water and electricity supply to homes and businesses. (There have been suggestions that drivers would be responsible for tracking the distance they drive in a app, which would be verified at inspection stations.)

Two krona kilometre-charge for hybrid vehicles

Hybrid vehicles (passenger and delivery vehicles) will, as per the proposal, be charged a two-krona-per-kilometre fee next year. The deadline for submitting opinions on the proposals is set for October 16. Following this, the minister can present a bill.

According to the new draft budget of the government, there are also plans to introduce a per-kilometre charge on petrol and diesel vehicles. The existing tax system on vehicles and fuel will be reviewed. However, this will not be implemented until a year after the per-kilometre charge is applied to clean energy vehicles.

Hypothetical scenario to elucidate costs

After the Minister’s proposal was announced, RÚV performed a quick back-of-the-envelope calculation to estimate the cost of driving from Efstaleiti in Reykjavik (where the RÚV headquarters are located) to downtown Mosfellsbær; given that the drive is about 13 kilometres, the drive would cost 78 krona with the six krona per kilometre charge. Given this, residents of Mosfellsbær working in Efstaleiti would drive ca. 26 kilometres per day and pay ca. 156 krona. Over a five-day workweek, the cost amounts to ISK 780 or ISK 40,560 [$295/€280] on an annual basis.

Minister Advocates for Fiscal Restraint in Iceland’s New Budget

Prime Minister Bjarni Benediktsson

In a budget briefing yesterday, the Finance Minister highlighted increased government earnings while advocating for fiscal restraint to counter inflation. He revealed a multifaceted approach for the upcoming year, which included streamlining state institutions for targeted savings of ISK 17 billion [$129 million / €119 million], revising road taxes to account for the surge in electric vehicles, and adjusting income tax brackets, all against a backdrop of a projected state treasury deficit and rising healthcare costs.

Cautious optimism tempered by financial and demographic challenges

During yesterday’s press conference on the state budget, Finance Minister Bjarni Benediktsson underscored the significance of acknowledging a marked increase in government revenue, which had surpassed earlier projections. He advocated for continued fiscal discipline to mitigate rising inflationary pressures. The goal was to prioritise investments in infrastructure and basic services like the National Hospital and housing. He also revisited plans to streamline state-run institutions, targeting savings of ISK 17 billion [$129 million / €119 million] for next year.

On transportation, Bjarni stressed that the rise in electric vehicles, facilitated by government incentives, had negatively impacted fuel tax revenues. He announced plans for a “new, simpler, fairer, and more transparent system” based on road usage. “It’s time for electric vehicles to participate in maintaining the road network,” he added.

As noted by RÚV, the draft budget reveals a projected state treasury deficit of ISK 46 billion [$344 million / €320 million], primarily due to interest expenses outpacing interest income. However, core operational revenues anticipate a surplus of ISK 28 billion [$209 million / €195 million]. Self-sustaining state entities project a modest surplus in core operations but face a deficit once interest is considered.

Healthcare spending is set to increase significantly, up by ISK 88 billion [$658 million / €612 million] since 2017 and ISK 14 billion [$105 million / €97 million] compared to last year. Factors like tourism, population growth, and an ageing population are cited as key drivers.

An 8.5% adjustment in income tax brackets by year’s end is expected to reduce the average income tax by about ISK 7,000 [$52 / €49]. Bjarni also noted the reimplementation of the overnight stay tax in 2024 – revoked in 2020 due to the pandemic – extending it to cruise ships.

Total state expenditure for the next year is estimated at ISK 1,480 billion [$11 billion / €10.3 billion]. The budget draft shows a 22.3% increase in financial costs and a 14.8% rise in hospital services. Funding for innovation has decreased the most, by 9.7%, followed by a similar reduction in foreign affairs.

Overall, the budget suggests a cautious optimism tempered by financial and demographic challenges.

Briefly on the budget: According to constitutional provisions, disbursements from the state treasury can only be made if authorised in the annual budget or a supplementary spending bill. The budget undergoes a rigorous legislative process: the Minister of Finance introduces the draft budget to Parliament during its first autumn session, typically held on the second Tuesday in September. Following this, the draft undergoes three rounds of parliamentary debates before it is usually finalized and approved in December.

Tesla Best-Selling Private Car in Iceland Last Year

Tesla electric cars were the best-selling passenger vehicle for individual consumers in 2022, RÚV reports. This is part of a larger pattern: more than half of new cars sold to individuals in 2022 were electric cars. Tesla did not, however, sell the most cars overall in Iceland. That distinction belongs to Toyota, although cars sold to rental companies accounted for 73% of its sales last year.

Changing patterns and incentives related to energy consumption have significantly shifted the automobile market in Iceland. According to María Jóna Magnúsdóttir, executive director of the Automotive Industry Association, last year was the seventh highest year for automobile sales in the country since 1972.

“It’s gone pretty well, in spite of great disasters around the world; car sales here have been good,” she remarked. “We’re naturally seeing a huge spike in the sale of electric cars, especially to individuals. They’re choosing electric cars just over 50% of the time.”

Toyota sold the most cars overall, Tesla the most cars for personal use

Just under 16,700 cars were newly registered in Iceland last year. Of these, 7,600 were rental cars.

Toyota is the foremost seller of cars that will be used on the rental market in Iceland. A total of 2,754 Toyota passenger cars were sold last year, the majority of which—or 1,440 cars—were intended as rentals. The remaining 739 Toyotas were sold to individuals.

The manufacturer that sold the second highest number of new cars in Iceland last year was Kia, with 1,800 cars sold. Hyundai was next, with just over 1,400 cars sold. Tesla came in fourth overall, with 1,300 cars sold.

However, if only car sales to individuals are considered, then the rankings shift in Tesla’s favor. Tesla sold 872 cars to individuals last year, followed by Toyota with 739, Kia with 717, and Hyundai with 502 cars sold for personal use. Tesla only sells electric cars, but it is not the only manufacturer that does. Toyota, however, has fewer electric options than its fellow brands.

Overall, nearly 5,600 electric cars were sold in Iceland last year. More diesel cars were sold in 2022 than in 2021 and 2020.

At-home charging only ISK 3 / km

Electric cars are commonly considered to be much cheaper to run and maintain in Iceland, not least because electricity is so much less expensive than petrol.

It’s been estimated that a five-person electric car costs roughly ISK 3/km [$0.021; €0.020/km] if it is charged at home. The price of domestic electricity in Iceland, including distribution charges, is estimated to cost roughly ISK 17 [$0.12; €0.11] per kilowatt-hour. It is more expensive to pay for electricity at fast charging stations and at so-called supercharger stations, though the charging process is, of course, much faster.

As Gasoline Use Drops Iceland Must Find New Ways to Fund Infrastructure

driving in reykjavík

Icelandic authorities are looking into new ways to tax vehicle use, Finance Minister Bjarni Benediktsson stated at a tax conference this morning, RÚV reports. Road and transport infrastructure in Iceland is currently funded by tax revenue from gasoline, and that revenue has decreased significantly in recent years, due to electric car use and other factors. 

“It’s important that we create a bridge from the old system and into the new one to ensure the treasury has enough revenue in the long term in order to support the development and maintenance of transport infrastructure,” Bjarni stated, adding that creating a new revenue system for transport and infrastructure was one of the biggest tax-related projects of this government term. The government would look at other ways of taxing vehicles, including by the distance driven, according to Bjarni. Any new taxation system implemented would need to continue to encourage consumers to buy greener vehicles, however. “We’ll see how it goes, that’s one of the big projects and we have already started,” Bjarni stated.

The Finance Minister also reviewed the government response to the ongoing pandemic at today’s conference. The taxation system had been amended to support homes and businesses due to the pandemic and help them grow out of the ensuing difficulties. Bjarni added that the Central Bank’s rate hikes could be taken as a warning, and that public funds in support of businesses and individuals must be reduced when possible.

New Fast Charge Station Can Power a Car for 100 Km in Under Five Minutes

driving in reykjavík

The most powerful electric vehicle fast-charge station went into use in Iceland on Friday, RÚV reports. It only takes five minutes for the station to charge a vehicle for 100 kilometres [62 mi].

The charging station has been installed in the parking lot of the Bílabúð Benna car dealership at Krók­háls 9 in Grafarholt og Úlfarsárdalur in the eastern suburbs of Reykjavík. It can deliver up to 350 kW of electricity. According to dealership owner Benedikt Eyjólfsson, this is even more powerful than the EV charging stations that Tesla is installing, which provide up to 250 kW. The stations installed by Icelandic power company ON Power reach a max of 150 kW.

“It can take under five minutes for 100 kilometres,” said Benedikt, “and if the car can take such a powerful charge, you could get up to 250 kilometres in 10 minutes.” The station will be open to anyone who has a vehicle with the so-called ‘Euro connector’ (Type 2) for fast charge stations. The first person to charge their electric car at the station was Minister of Industry and Innovation Þórdís Kolbrún Reykfjörð Gylfadóttir, who commented that the country’s transition away from from fossil fuels in transportation is well underway. In fact, she says, Iceland has made more progress in transitioning away from fossil fuels than almost any country in the world.

See Also: Renewable Energy 11.4% of Fuel in Road Transport in 2020

“The energy transition in transportation is going well, we’re now number two in the world, after the Norwegians, and we’ve been encouraging and supporting infrastructure development.” Þórdís Kolbrún says that this infrastructure, i.e. additional charging stations, has been “sorely needed” so that “there won’t be this range anxiety and people can travel between places and out in the countryside.”

“We also know that there are often bottlenecks,” Þórdís Kolbrún continued, “and we have to be careful that at places where there are many [EV charging stations], that people can charge both quickly and well. We’re trying to achieve this combination by pushing things forward with grants, but of course it’s just the general market that’s really doing it,” she concluded.

Electric Cars Over Half of New Vehicles in Iceland This Year

driving in reykjavík

The majority of newly-registered vehicles in Iceland this year are either electric or hybrid vehicles, reports. It is the first time that conventional cars, powered by gasoline or diesel, have not been the majority of new cars purchased.

In 2014, conventional vehicles accounted for 97% of new registrations. So far this year, they account for just 45%, and there is no sign the trend will reverse. Hybrid vehicles and plug-in hybrids are popular in Iceland, but fully electric vehicles have gained the most ground on the market recently.

Read More: How is the Icelandic government promoting electric vehicles?

Electric or hybrid cars currently account for 11% of the nation’s fleet. estimates that electric cars will account for the majority of passenger vehicles within a decade or so. There are around 16,000 electric vehicles in Iceland, of a total of 357,000 motor vehicles, of which around 220,000 are passenger vehicles.

112 Charging Stations to Be Installed Around Iceland

electric car charging station

According to an announcement on the Government of Iceland’s website, the Energy Fund has allotted subsidies to commercial lodging companies around Iceland for the installation of electric vehicle charging stations. The grant, which amounts to over ISK 30 million, will allow for the charging of 110 electric vehicles at any given time. Applicants are expected to provide a complementary contribution of at least half. The project’s total investment, therefore, amounts to approximately ISK 60 million.

This summer, three government ministers introduced a plan to systematically improve infrastructure for the proposed energy transition within the transportation sector. On the same day, proposals were called for regarding investment subsidies for the development of electric vehicle charging stations on the premises of commercial lodging companies. Subsequently, the Energy Fund was tasked with distributing the subsidies. A total of 26 grants will be allotted for the installation of 112 charging stations around the country.

The announcement also underscores the impact of car rental companies in Iceland; nearly half of all newly registered vehicles in Iceland are rentals. In order to facilitate the energy transition of car rental companies, the subsidies aim to increase charging stations on the premises of commercial lodging facilities around Iceland.

Over the coming months, further investment subsidies for the construction of fast electric vehicle charging stations will be allotted. Proposals for such subsidies were called for this summer. Numerous applications were received, which the Energy Fund’s prudential committee is currently reviewing. These grants will be employed to construct fast-charging stations in key areas to ensure that electric vehicles can travel unimpeded between different parts of Iceland. According to the announcement, this is important because the number of electric vehicles in Iceland is quickly increasing. Only in Norway do electric vehicles account for a higher ratio of new registrations.

The above-mentioned grants are based on proposals made by a task force appointed by the Ministry of Transport and Local Government, the Ministry for the Environment and Natural Resources, and the Ministry of Industries and Innovation. The task force was entrusted with proposals regarding a plan of action to facilitate energy transitions in Iceland. The project forms a part of the government’s platform of action against climate change.

How is the Icelandic government promoting electric vehicles?

electric car charging station

The Icelandic government has put forward a plan to replace fossil fuels with electricity in the next decades. Among the government’s goals is a total ban on new petrol and diesel vehicles by 2030. The government aims to have 30,000 electric cars in Iceland by 2026. To make this transition go smoothly, charging ports have […]

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