Consistency
One system for all fees
Equity
Independent of energy sources and social conditions
Future-focus
Adaptation to energy transitions and future developments
Transparency
Charges according to road usage
Simplicity
A simple and user-friendly system
Today, our road systems are largely financed by oil and gasoline excise duties, which we pay for whenever we pump fuel on our diesel or gasoline vehicles. For the average gasoline vehicle, these fees amount to about 187,000 ISK per year, or about 7,000 ISK per month. In the past years, however, these revenues have decreased significantly because many have switched to electric and plug-in hybrid vehicles, which pay little or nothing for the use of the road system, but also because vehicles fueled by diesel or gasoline are becoming more fuel-efficient. It has become clear that the old system must soon come to an end, since revenues from oil and gasoline fees will disappear once the energy transition has been completed. While traffic derived revenues have been decreasing, traffic and the cost of maintaining roads have both increased. That's why it's necessary to adopt a new system – one that ensures that our roads are financed equitably regardless of the energy source in use.
In early 2024, a new per-kilometer charge was introduced for the use of electric, plug-in hybrid and hydrogen-fueled passenger or courier vehicles. The charge will be based on the number of kilometers driven, so only those who use the roads will pay. The new system will thus more accurately reflect the actual usage of our road infrastructure than the oil and gasoline fees do. The charge will be 6 ISK per km for electric and hydrogen vehicles, and 2 ISK per km for plug-in hybrids. Therefore, for an average electric car, the cost will be about 7,000 ISK per month, which is similar to what is paid for the use of a gasoline car – achieving equity in charges for road system usage. Due to other taxes and higher energy costs, operating a gasoline car will nonetheless be nearly twice as expensive as an electric car. Therefore, vehicle owners will still be greatly incentivized to transition to sustainable energy sources.
The aim is to establish a per-kilometer charge paid for the use of all vehicles by the year 2025, fully replacing oil and gasoline fees. By then, everyone who uses the system pays based on the number of kilometers driven in a coordinated system in which additional factors – such as if a vehicle's weight exceeds a certain limit – are taken into consideration. This means that the financing of road infrastructure maintenance and development will become totally independent of the energy source users choose. In addition, the new system will more accurately reflect the stress placed on the road system by everyday use, which will in turn supply a sustainable amount of funding for the future. A carbon fee will continue to be paid for the use of diesel and gasoline due to the climate impact caused by their use. The future of infrastructure funding is based on ensuring that use of our roads is charged for in an equitable way, regardless of energy source and consumption, in a transparent and simple manner – in order to ensure reliable financing for the future.
Electric vehicles
Plug-in hybrid vehicles
The proportion of electric and plug-in hybrid vehicles among passenger cars in traffic has increased from 5.4% in 2019 to 17.4% in 2023. In 2023 alone, they make up 50% of newly registered cars, or 76% if rental cars are excluded.
The load placed on the road system has increased by 50% in the past decade. In 2022, passenger cars drove 3.3 billion kilometers on the country's roads, compared to 2.2 billion in 2012. The number of passenger cars on the roads has increased by 36%, and each car is driven 11% more than before. Alongside this growing strain on the roads, the need for maintenance and development has increased. This calls for a reliable financing model that better reflects the actual use of the road system.
Increase in Iceland's road traffic
Revenues from oil and gasoline charges have decreased by 30% since 2012, whether we look at charges per vehicle or as a proportion of GDP. The reason being that the charges are based on fuel consumption, not on actual road use. Thus, the positive development of each car consuming less has led to lower revenues for the road system despite there being more cars and more driving. In addition, little or no fees are paid for the operation of a growing part of the vehicle fleet, now nearly 20% or about 40,000 electric and plug-in hybrid vehicles.
Less payed for road usage
The current system is based on fossil fuel use. Oil or gasoline charges are paid for each liter of fuel used by cars. However, this does not reflect the actual use of the roads. The positive trend towards more fuel-efficient cars means that more kilometers can now be covered with fewer liters of fuel, which means that less is paid for the use of the roads despite there being more overall driving. As we make the transition to renewable energy, our goal is to eventually stop using fossil fuels. Leaving the system unchanged will therefore not sustain the future financing of efficient and safe road transport across the country. Revenues have already decreased by 30% in the last decade, and with the ongoing energy transition, it is clear that they will dwindle even further. Therefore, a systematic change is necessary to ensure financing for the future.
The ongoing energy transition doesn't reduce the need for efficient and safe road infrastructure – since electric cars also need good roads. Therefore, it is important that a new system is introduced, one in which payment is made for the use of all vehicles, regardless of their energy source. With the per-kilometer charge, usage will be based on kilometers driven instead of liters of fuel. Thus, everyone will pay in accordance to their use of the road system, instead of fuel consumption as it is now.
In 2024, a per-kilometer charge was introduced for the use of electric, plug-in hybrid, and hydrogen vehicles classified as passenger or courier vehicles. This means that those who use such vehicles pay a per-kilometer charge for the use of road transport in 2024. This will not affect those who use diesel or gasoline vehicles in 2024.
The plan is that from 2025, a per-kilometer charge will be paid for the use of all vehicles.
You don't need to do anything until 2024.
If you are the manager of an electric, plug-in hybrid, or hydrogen vehicle classified as a passenger or courier vehicle, you will then need to submit the kilometer reading of your car in early 2024. You will be able to do so by using a special web-portal on Island.is, via web-browser or smartphone app. Other options will be available for those who are unable to use these methods, such as by getting a special reading from certified inspection stations. If you are the manager of a diesel or gasoline vehicle, you don't need to do anything for them for the year 2024.
Closer to the end of 2023, more information and guidance will be provided.
According to the current bill in Parliament, it is anticipated that in 2024, the per-kilometer charge for electric and hydrogen vehicles will be 6 ISK for each driven kilometer. For plug-in hybrid vehicles, the charge will be lower, at 2 ISK per kilometer, since such vehicles also run on diesel or gasoline and pay diesel and gasoline charges for that usage. Additionally, the range of plug-in hybrid vehicles varies considerably.
As an example, for an electric car driven an amount equivalent to the average private vehicle in Iceland, or 14,000 kilometers a year, the charge will therefore be 84,000 ISK per year or 7,000 ISK per month.
In order to raise funds for the construction and maintenance of the road system, it has been considered fair that those who use road transport should pay.
Currently, this usage is paid for with diesel and gasoline charges. These fees have been based on the premise that fuel consumption reflects the use of the road system. These charges have thus been levied per sold liter of fuel and paid at the pump. In 2023, about 87,000 ISK is paid for the use of an average gasoline car, which corresponds to just over 7,000 ISK per month.
No, the per-kilometer charge will not take into account the weight of passenger cars in 2024.
When it comes to introducing more types of vehicles into the new road transport charging system, vehicles exceeding a certain minimum weight will pay a higher per-kilometer charge.
The first step in implementing the per-kilometer charge in 2024 will only affect those who use electric, plug-in hybrid or hydrogen vehicles. This group has not been made to pay for road use until now, but will start doing so in 2024, similar to how users of other vehicles pay in the form of excise taxes on fossil fuels. Ownership of electric and plug-in hybrid vehicles is much more common in higher income deciles than in the lower ones, and therefore the implementation of the per-kilometer charge in 2024 will most affect the higher income groups of society.
The chart below shows how ownership of both electric and plug-in hybrid vehicles is distributed across income deciles in 2022, among singles and jointly taxed couples (cohabiting partners).
For electric vehicles, the chart shows that among singles, about 64% of electric vehicles are owned by those in the top three deciles. Among jointly taxed individuals, about 54% are owned by the top three deciles. Ownership of electric vehicles then decreases as you move down the income deciles. If you look at ownership of plug-in hybrid vehicles in the same way, a similar picture emerges. Among singles, 61% of plug-in hybrid vehicles are owned by the top three deciles and 49% among jointly taxed individuals.
This suggests that higher income groups will be most affected by the first step of the system change in 2024. However, it can be expected that the share of electric vehicles in the car ownership of income groups will gradually become more equal in the coming years as the price of electric vehicles continues to decrease compared to other cars, and as their availability on the second-hand market increases.
Car rental companies operating in Iceland will need to pay the per-kilometer charge for vehicles in their possession like everyone else. It is then up to each car rental company to decide whether and how they will pass this charge on to their customers. Tourists who come to the country with their own vehicles will need to pay a daily charge for the days they are in Iceland, and the transporter, i.e., the entity that brings the vehicle to the country, will be responsible for collecting it.
No, because the largest proportion of electric and plug-in hybrid vehicles subject to the charge in 2024 are located in the capital region, about three out of every four.
The bar chart below shows the distribution of household vehicle ownership per 1,000 inhabitants for electric and plug-in hybrid vehicles.
The reading of odometers at inspection stations shows that the average driving per vehicle is highest in the municipalities neighboring the capital area and lowest elsewhere in the countryside, as shown in the accompanying graph.
Further breakdown by individual postal codes can be seen in the graph below. It is based on the average annual driving in postal codes where the number of vehicles owned by individuals is over a thousand.
Yes, there will still be significant financial benefits to owning an electric car over a gasoline car in terms of energy costs.
With the introduction of the per-kilometer charge, one goal is to ensure an equitably method of charging for the use of road transport regardless of the vehicle's energy source. Thus, it is expected that in 2024 a comparable amount will be paid for the use of an electric car with a per-kilometer charge and a gasoline car with gasoline charges – about 7,000 ISK per month.
Although charges for use of the road system will be made more equitably, the various other costs which accompany operating a gasoline car will remain considerably higher. When the main cost items are combined, i.e., other charges and energy costs, it is expected that they will total about 28,000 ISK per month for a typical gasoline car in 2024 but about 14,000 for an electric car. The difference is mainly due to the fact that fossil fuels are significantly more expensive energy sources than electricity, and owners of clean energy vehicles do not have to pay a carbon fee.
The chart below shows a comparison of the main cost items for gasoline and electric cars in 2024, including the 6 ISK per-kilometer charge. It is based on average consumption and average driving of passenger cars in 2022.
Yes, the government's policy to pave the way for electric cars in Iceland continues in order to subsidize the purchase price for buyers, as it is still somewhat higher than for other types of vehicles. In 2024, the arrangement for these incentives will be changed so that special grants will be provided for the primary purchase of new electric cars. This revised arrangement of subsidies replaces the discount on value-added tax that has been provided. The goal of the change is to make the support more targeted and transparent.
No, the adoption of the per-kilometer charge or future changes to it will not affect the consumer price index, as it is a general tax for the use of the road system.
No. Such plans are not part of the proposed system change in 2024.
Iceland is a leader in transitioning to sustainable energy, as evidenced by the fact that more than half of the cars newly registered in 2023 have been electric or plug-in hybrid vehicles. Diesel and gasoline vehicles have become increasingly fuel-efficient, and the pace of Iceland's energy transition has accelerated in recent years. In order to achieve its climate goals, Iceland aims to transition to renewable energy and to become independent of fossil fuels by 2040. Consequently, the import of oil and gasoline-powered cars will be discontinued in 2030. The climate policy entails that the current financing system will become unsustainable and will not support the future development of road infrastructure.
Currently, work is being done to create a comprehensive vision for the future aimed towards creating a harmony between the financing of road maintenance and development and fees charged for using our roads in one system, making it independent of energy sources.
The goal is to create a sustainable system that ensures financing capable of supporting the necessary maintenance and development of the road system for the future. A project management office, working in close connection with a steering group under the auspices of three ministries – the Ministry of Finance and Economic Affairs, the Ministry of Infrastructure, and the Prime Minister's Office – has been working to address various issues and preparing for the implementation of the project. In developing the new system, work is carried out according to clear objectives, which are: consistency, equity, future-focus, transparency and simplicity. The project management office's emphasis has been to work in stages in order to learn from experience and to ensure effective implementation.
Our roads to the future
Roads to the Future is an information site concerning the implementation of a new unified system designed to charge for the use of road transport. The design and implementation of the new system is led by special purpose advisory group which operates on behalf of the Ministry of Economic Affairs, the Ministry of Infrastructure and the Prime Minister´s Office. The website uses data from The Icelandic Transport Authority, Statistics Iceland, the Ministry of Environment, Energy and Climate, the Icelandic Road and Coastal Administration, and the Ministry of Finance and Economic Affairs.
The first step will be taken in 2024, when a per-kilometer charge for the use of electric, plug-in hybrid, and hydrogen vehicles classified as passenger or courier vehicles will be introduced. The charge will be 6 ISK per km for electric and hydrogen vehicles and 2 ISK per km for plug-in hybrid vehicles.
With the implementation of a per-kilometer charge, charges for road usage will be more equitably distributed. By introducing the charge for electric, plug-in hybrid and hydrogen vehicles in 2024, comparable amounts will be paid for their use as for diesel and gasoline vehicles. The fee will reflect the amount of kilometers driven, so the charge will transparently reflect the actual use of road transport. Thus, those who use the roads will pay for them.
The per-kilometer charge will be paid monthly, similar to how we're used to paying for our electricity bill and other utility services. Monthly payment will be based on the estimated amount of distance driven for the year. The kilometer reading of vehicles is expected to be recorded on Island.is at least once a year, starting at the beginning of 2024.
It will still be nearly half as expensive to operate an electric car compared to a gasoline car, even though similar charges will be paid for the use of the road system. In total, it will be about 160,000 ISK more expensive per year to drive an average gasoline car compared to an electric car. Therefore, there will still be significant financial benefits to choosing a vehicle that runs on clean energy.
Charges paid at gas stations
New km charge
Use fee (km-based fee)
Use fee (gasoline and diesel fees)
Use fee (carbon fee)
Energy cost
Vehicle fee
Value-added tax (VAT)
Comparison of the main fees and costs for an electric car and a petrol car in 2024. Based on average driving (14,000 km/year) and average consumption of passenger cars in 2022.