When the Tax Breaks Disappear
EVs Struggle in Green Darling Denmark

Denmark can rightfully boast to be one of the greenest countries in the world, but even in this clean-tech utopia, electric vehicles are struggling to break into the mainstream. EV sales are rising around the world, but they spiked sharply in Denmark. As Bloomberg puts it, “[Denmark’s] bicycle-loving people bought 5,298 of them in 2015, more than double the amount sold that year in Italy, which has a population more than 10 times the size of Denmark’s.” Since then, sales in the EU have risen 30 percent, but Denmark has broken from that pattern and seen its own citizens purchase 60.5 percent fewer EVs in the first quarter of 2017. As Bloomberg reports, this reversal is the result of the phase out of a generous tax break:

[It] turns out that [Denmark’s] phenomenal sales figures had as much to do with convenience as with environmental concerns: electric car dealers were for a long time spared the jaw-dropping import tax of 180 percent that Denmark applies on vehicles fueled by a traditional combustion engine.

In the fall of 2015, the Liberal-led government of Prime Minister Lars Lokke Rasmussen announced the progressive phasing out of tax breaks on electric cars, citing budget constraints and the desire to level the playing field. […]

The new tax regime “completely killed the market,” Laerke Flader, head of the Danish Electric Car Alliance, said in a recent interview. “Price really matters.”

Price obviously matters—it always does—and Denmark’s experience should serve as a warning against reading too much into the progress of green industries (like solar power or, in this case, electric vehicles) that are being propped up by market distorting subsidies or tax breaks.

For the electric vehicle industry specifically, this isn’t a major setback, because many of the automakers in this space are having success in bringing costs down to levels that are attractive for consumers, even without generous tax breaks. It is a heat check of sorts, though, and it suggests that the promised takeover of EVs is further away than its most ardent advocates (and environmentalists) might have you believe.

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