Rapid changes have occurred over five years
Technology has advanced and today the electric cars on the country's roads are much better suited to the Icelandic climate, as there are now close to 23,000 such cars registered. Not much has happened in terms of electrifying the car fleet in the 40 years that passed from the import of the first electric car to Iceland. For example, they were less than 1% of passenger cars until 2018, when the percentage rose to 1.3%. Since then, their share has increased rapidly. In November 2023, electric cars accounted for around 9% of registered passenger cars in Iceland.
Furthermore, about half of all new, registered passenger cars in Iceland in the first nine months of 2023 were electric cars, or just over two-thirds if new registrations by car rental agencies are excluded. These changes have not occurred in a vacuum. They are a part of a larger societal journey known as the energy transition – the switch from fossil fuels to clean energy sources for the benefit of the climate.
Along with this, the development of EV charging infrastructure throughout the country has been successful, although it has certainly been faster in the capital area, where the number of electric cars is the greatest.
Iceland is well poised for the energy transition
Numerous factors make Iceland especially ideal for the use of electric cars compared to countries in Western Europe and elsewhere.
First of all, electricity in Iceland is almost exclusively produced with renewable energy sources such as hydropower and geothermal energy, which makes driving electric cars in Iceland an environmentally friendly option. Electricity in Iceland is also considerably cheaper than in most other places, and car owners can therefore reduce the operating costs of their cars considerably by choosing electric cars over cars that run on fossil fuels. In addition, all electricity consumed in Iceland is produced domestically, so there is no need to import energy for electric cars, which is beneficial for the national economy.
Secondly, the Icelandic government has supported the energy transition in road transport with measures and concessions in recent years. For example, no excise duty was charged on the purchase of new electric cars until the end of 2022, and now only a 5% excise duty is paid for the import of such cars. In addition, the purchase of electric cars has been partially or completely exempted from VAT, and in 2024 it is expected that a new subsidy system will replace it. Only the minimum annual road tax will be payable for electric cars. The development of EV charging infrastructure has also been well supported, among other things by reimbursing VAT on home charging stations and their full installation.
Higher income groups are the first movers
As is often the case when it comes to the implementation of technological change, the transition to electric cars has occurred faster among the highest income groups. Data from the National Statistics Office show that among singles, 64% of electric cars were owned by the three highest income deciles, while for jointly taxed couples, the percentage was 54%. This suggests that the ability to switch to an electric car is partly influenced by economic factors.
However, it can be assumed that the impact of economic factors will be less in the coming years. As electric cars become more common and more used electric cars come on sale, one can assume that more income groups will have better access to buying electric cars. It is also likely that prices will decrease as technology improves, the number of manufacturers increases and the range of types and availability increases. It is generally believed that within a very few years, the price of electric passenger cars and vans will be the same as that of conventional diesel and petrol cars.
Different trends across the country
The majority of electric cars in Iceland, or about 76%, are located in the capital area and in municipalities where about 64% of the country's population live. Outside the main urban center, electric car ownership per thousand inhabitants decreases.
Outside of the capital area, there are the most electric cars per thousand inhabitants in municipalities such as Akranes, Árborg and Reykjanesbær, which are part of the capital's and adjacent municipalities' employment area. This difference between the capital area and other parts of the country underlines the need for the development of charging infrastructure throughout the country, infrastructure which would also make trips for individuals in the capital area to the country, and vice versa, more practical.
The energy transition in Iceland has yielded considerable success in a short time. Although the conditions for the energy transition in Iceland are particularly favorable, the government's support has also been very important. The government's goal is for the energy transition to be achieved by 2040, and therefore the percentage of electric cars in traffic must go from 9% to 100% in the next 17 years. It is a demanding task and a big challenge for the government and society.
