The curious case of road pricing reform in Norway: Welfare impacts and political economy of a stalled transition

Norway may become one of the first countries in the world to develop and implement a national distance-based road pricing system. This is largely motivated by the sizeable government revenue shortfall due to the world-leading phase-in of battery electric vehicles. The recent government-initiated formal Concept Study, with detailed numerical simulations, assessed alternative options including spatial and time-of-day differentiation. The final recommendation includes a distance charge for electric vehicles but without spatial or time-of-day differentiation. While welfare enhancing compared to current policies, this recommendation foregoes 7 billion NOK in net present value compared to the concept with highest net present value. In addition, the process has stalled at the political level. We analyze transport and welfare implications of the concepts and discuss the main challenges of the effectiveness of reform and of its actual implementation. We argue that at the heart of the political stalemate is the vertical tax competition between a central government losing its fuel tax revenues and the local governments that need to co-finance local transport projects via earmarked tolls. Combining two government levels with stringent tax revenue concerns with the objective of aligning the user prices with widely diverging external costs is a difficult undertaking.