Iceland is one of the world's most interesting electric vehicle markets

Posted Monday, 9 July 2018, 12:13

Sandra Wappelhorst and Uwe Tietge

Iceland is a small country by measures like population and population density. But such measures do not always tell the full tale. Policymakers, researchers, and anyone interested in the future of clean transportation might do well to keep an eye on Iceland’s vehicle market, because the small island nation is leapfrogging into position as a leader on electric mobility.

The figure below plots the monthly electric vehicle (EV) share—plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs)—of new passenger car registrations in Iceland from January 2014 to June 2018. Because monthly data are noisy, we include 12-month rolling averages to smooth out monthly and seasonal trends.

Monthly shares of battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) among new passenger cars in Iceland. EU 2017 electric vehicle (EV) average included for reference. (Sources: Icelandic Transport Authority, European Automobile Manufacturers Association)

The plot shows that Iceland’s EV market is booming. In 2017, 2.0% of new car registrations were BEVs and 6.8% PHEVs, for a total EV share of 8.7% by the end of 2017—second only to Norway in terms of EV uptake in Europe. Halfway through 2018, the EV share has increased to 13.5%. For comparison: The EU average electric vehicle share was 1.4% in 2017. Over the past four years in Iceland, average registration figures of new PHEV in particular have been consistently moving in one direction: up.

Iceland has quietly become one of the leading EV markets worldwide in the past four years, but the foundation for low-carbon transportation was laid there decades ago. Renewable power, low electricity prices paired with high fossil-fuel prices, and a high urbanization rate make Iceland an ideal market for EVs.

In Iceland, virtually 100% of electricity is generated from renewable sources. About three-quarters of domestically produced electricity comes from hydropower and one-quarter from geothermal energy. In Europe, only Norway has the same ability to provide electric vehicles with 100% renewable electricity.

This low-carbon electricity is available to consumers at comparatively low cost—20% lower than the average electricity price in the EU—while prices of conventional automotive fuels in Iceland are among the highest worldwide. Consumers can significantly reduce fuel costs by switching from conventional vehicles to EVs. For example, an owner of a gasoline-fueled VW Golf pays about 1,500 euros on fuel per year, assuming an annual mileage of 13,000 km and a gasoline price of 1.68 euros per liter. The owner of a comparable all-electric VW e-Golf only pays about 300 euros—one-fifth as much. For comparison: The same ratio for Norwegian VW Golf gasoline/BEV owners is 1,400 to 400 euros. In Germany, it is only 1,200 to 750 euros.

Iceland is one of the world's most urbanized places. 94% of its population lives in urban areas, two-thirds in the capital region of Reykjavik. In addition, its size is ideal for electric vehicles: 500 km from west to east, and about 350 km from north to south. This means that most trips are well within EV range: Icelandic car owners, on average, drive approximately 38 km per day.

So, Iceland offers ideal prerequisites for electric mobility. While other countries cannot easily copy Iceland’s electricity grid, geography, or demographics, some of Iceland's policies to spur EVs could be transferred to other markets, specifically the financial incentives offered to overcome cost differences between EVs and conventional cars and the expansion of the charging infrastructure network to enhance the convenience for EV users. (It should be clearly pointed out that such measures need to be flanked by, e.g., long-term national regulations to overcome model unavailability and consumer campaigns to raise awareness.)

First and foremost, Iceland exempts vehicles emitting up to 80 g CO2/km from import excise duties, which can reach 65% of the vehicle’s customs value if emissions exceed 250 g CO2/km. In addition, in 2012, Iceland was one of the first countries in the world to introduce value added tax (VAT) exemptions or discounts for low-emission vehicles. These VAT exemptions/discounts have recently been extended until 2020. Together these incentives ensure that EVs are priced competitively compared to combustion engine cars. Take, for example, the different VW Golf models as shown in the table below. The gross sales price for the VW e-Golf in Iceland is currently about 32,100 euros and 31,300 euros for the PHEV version, barely more than a gasoline version and less expensive than a comparable diesel.

Brand/Model Model Year Powertrain Engine power (kW) CO2 emissions (g/km) (NEDC) Engine size (cm3) Gross sales list price (€)
VW Golf 1.4 TSI Comfortline 2017 Gasoline 92 119 1,395 31,246
VW Golf GTE 2017 Plug-in hybrid electric vehicle (PHEV) 150 36 1,395 31,327
VW e-Golf 2017 Battery electric vehicle (BEV) 100 0 0 32,141
VW Golf 1.6 TDI Comfortline 2017 Diesel 85 102 1,598 35,314

Gross sales list prices for different VW Golf models sorted by ascending price (based on VW list prices for Iceland as of January 2018; exchange rate 122.8975 Icelandic krónur = 1 euro)

In addition to financial incentives, the fast rollout of public charging infrastructure, including fast charging stations, is a top priority for the Icelandic government. National grants amounting to about 200 million Icelandic krónur (about 1.63 million euros) over a three-year period (2016–2018) could more than triple the number of fast-charging stations on the island.

Local incentives for EVs support national subsidies and the charging infrastructure rollout. For example, the City of Reykjavik offers free charging as well as time-limited free parking for low-emission vehicles. Free charging for employees and/or customers is also provided by some companies and retailers. Lastly, the Icelandic government is working on building codes that require charging outlets for EVs in new and renovated buildings.

These policy insights aren’t news. ICCT studies (see here and here) have found that a tapestry of policies—national and local, financial and non-financial—are needed to kick-start the EV market. But Iceland is more than just another data point offering support for that view. Iceland is an exciting case study because it is a new leader in electric mobility and already has perfect conditions for EVs: low-carbon and inexpensive electricity, high fuel prices, and a high urbanization rate. With almost half of prospective buyers planning to purchase an EV, Iceland could have an astonishingly clean road transportation sector in a number of years. As such, it can help us imagine the future of road transportation and can inspire policymakers and researchers alike.