The Norwegian Illusion

A Natural Resource Investment Group Commentary

An investment group called Goehring and Rozencwajg wrote this commentary:

The highlights of the article:

Electric vehicles (EVs) are pilling up on lots across the country as the green revolution hits a speed bump, data show.”
~ USA Today, November 14, 2023

“Hertz Global Holdings announced Thursday it planned to cut one-third of its global EV fleet over the year. Following the announcement, Hertz CEO Stephen Scherr suggested the road to electrification could be bumpier than anticipated.”
~ Bloomberg, January 11, 2024

And here is where the article gets controversial, and what I want to keep an eye on:

Our research shows that EVs will struggle to achieve widespread adoption despite massive subsidies and the growing threat of outright internal combustion engine (ICE) bans. After carefully studying the history of energy, we have yet to find an example where a new technology with inferior energy efficiency has replaced an existing, more efficient one. Despite claims to the contrary, our research suggests EVs are less energy efficient than internal combustion engine automobiles. As a result, they will fail to gain widespread adoption.

They continue:

Our claim is controversial; most pundits insist EVs are far more efficient. We believe the ICE is clearly the winner once the energetic costs of both the battery and the renewable power required to make “carbon-free” EVs are considered.

Less energy efficient? Does that imply EVs emit more CO2 when including all the emissions that went into building them?!

Mitigating carbon emissions is central to the case for electric vehicles. Advocates argue that displacing fossil fuels is essential to curbing global warming. We disagree.   Replacing  ICEs with  EVs will materially increase carbon emissions and may worsen the problem. Manufacturing an electric vehicle consumes far more energy than an ICE. Most of this additional energy is spent mining the materials for and manufacturing an EV’s giant lithium-ion battery. Mining companies use energy-intensive trucks, crushers, and mills to extract each battery’s nickel, cobalt, lithium, and copper. The manufacturing process consumes vast amounts of energy as well. Many analysts eagerly tout the carbon savings from displaced fossil fuels without adequately accounting for the battery’s increased energy consumption. Once these adjustments are made, most, if not all, of the EV’s carbon advantage disappears.

If our models are correct, EVs will fail on two fronts: they are less energy efficient than the ICEs they are trying to replace and their adoption will do little to mitigate carbon emissions.

While such a revelation would not surprise me based on the track record of government and say, ethanol, I’ve generally not disputed that the average EVs “probably” out-perform the average ICE in net CO2 emissions in the order of 6-10 years; that it takes time for ICE engines to catch up to the emissions that went into mining and manufacturing of the EV battery pack. These guys are investors, and not scientists, so I’ll take their claim with a grain of salt. Anyway, I don’t view CO2 as a “pollutant we need to worry about.” My view is we have historically low levels of CO2 in our atmosphere and probably could use more, historic concentrations are uncorrelated with global temperatures, and it doesn’t have any measurable impact on global temperatures. I digress.

So, this article mentions the Norwegian illusion. It has some interesting data on the punitive measures Norway takes on those who want to buy/drive an ICE vs an EV:

The first problem is financial. The Norwegian government offers consumers massive subsidies to purchase an EV. New vehicles are exempt from several onerous taxes and the 25% VAT. On average, a large new ICE would be subject to $27,000 in various taxes; an equivalent EV would pay none. Next, Norway exempts EVs from any road or ferry tolls and allows them to use bus lanes, offers free parking and charging in municipal areas, and ensures “charging rights” in apartment buildings. Although Norway rolled back some of these operating subsidies starting in 2017, an Oslo resident can still expect these benefits to total $8,000 annually.

Norway is one of the wealthiest countries in the world, with a per capita GDP of $106,000 in 2022. Despite its impressive wealth, the government must still financially incentivize its citizens to purchase EVs.

The benefits are starting to take their toll on Norway’s finances. At nearly $4 billion annually, Norway spends as much on EV subsidies as on total highway and public infrastructure maintenance. The program has also raised significant issues around equality in Norway. EV subsidies favor high-income urban citizens, who take advantage of free tolls, parking, and charging and avoid the onerous tax on larger luxury vehicles. Several populist-leaning political groups in Norway have made so-called “elitist” EV subsidies a focal point of their platform.

Amid growing scrutiny, the government has actively sought to reduce several subsidies. Municipal parking is no longer free, and passengers (although not the vehicles themselves) are subject to certain tolls. The government also introduced a partial purchase tax on new EVs. Proponents have warned that any rollback of subsidies will surely harm EV penetration and offer Sweden as a case study, where, in 2022, the elimination of several subsidies precipitated a 20% drop in EV sales.

Here is probably the most important overall point of the article, and it has to do with the fact that no other place on earth has Norway’s hydrological resources (dams) and so Norway should not be used as an economic model to be emulated:

Using Norway as a model for CO2 reduction would be a mistake. Far more than any other country in the world, Norway benefits from its vast hydrological potential which generates nearly 92% of all electricity carbon-free. Therefore, a move from fossil fuels towards electricity will significantly impact Norway’s carbon emissions more than anywhere else on Earth.

I’ll stop copying the article here. You can click the link if you want to read the whole thing because the article illustrates the complexities of doing this kind of analysis and applying the results elsewhere. But there you have it. Ideology. Economic Fascism. Central planning by force. When it affects an entire nation in a major material, economic, and controversial way, it will most certainly result in bad outcomes.

Ludvig Von Mises understood this long ago.

Without a government propping up bad ideas and ideology by force, these ideas would be immediately confined to the dustbin of history.