Norway shows the way with electric cars, but at what cost?

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(Reuters) - Norway's buzzing little market for pure electric cars has in its very success shown the severe drawbacks to a model that relies on public subsidies worth as much as $8,200 per car, every year.

Car makers like Nissan, Mitsubishi, Peugeot Citroen and Tesla Motors seeNorway and its 10,000 battery-powered vehicles as a reason for optimism in otherwise gloomy terrain.

Pure electric cars made up 3.0 percent of February car sales in Norway, with a population of 5 million, compared to fractions of one percent in most nations. In the United States, for instance, they made up just 0.1 percent of all car sales in 2012.

But the factors that have made the car sell in Norway show how hard it would be to make the proposition work anywhere else: the car can't go long distances and isn't economical unless the government kicks in hefty incentives like tax breaks, free road tolls and free parking.

Ironically, experts say, electric cars may not even be helping the environment.

"Norway's an oasis in a huge desert," said Peter Schmidt, editor of Automotive Industry Data Ltd. in England. "But it's an example can't be followed - it only works because Norway has a 'supertax' on normal cars."

State subsidies, intended to promote a less polluting form of travel and cut greenhouse gas emissions, help bring the price of buying the top-selling electric Nissan Leaf in Norway down to 240,690 crowns ($42,500), competitive with the 1.3-litre Volkswagen Golf at 238,000 crowns ($42,000).

But in Britain, for example, while the Leaf is cheaper at 23,490 pounds ($35,500), including a 5,000-pound government subsidy, the same Golf sounds a bargain at 16,285 pounds ($24,600).

LEADING THE WAY

Norway's center-left government says small nations can lead the way for others like the United States, which is the world's largest market for electric cars with 14,687 sold in 2012 but which has backed away from a goal of putting a million electric cars on the roads by 2015.

But its example shows the huge cost involved - one that only a country like Norway, which has escaped the global economic slowdown thanks to vast revenues from oil and gas, can afford.

Norway's tax breaks on the purchase for electric cars are worth almost $11,000, or $1,400 a year over a car's lifetime, according to a study by Statistics Norway analyst Bjart Holtsmark.

Commuters driving into Oslo from the surrounding areas save an annual $1,400 in road tolls, can get free parking worth $5,000 and avoid other charges of $400.

It all adds up to as much as $8,200 per car, per year, before taking account of the benefit of driving in the bus lane rather than sitting in a queue with other cars.

The incentive scheme is due to run until 2017, when it will be reviewed.

"This is a good introductory offer," said Norwegian Environment Minister Baard Vegar Solhjell.

"It's a way to spread ideas and it also creates a lot of interest among the car companies," he said.

With three young children, Solhjell can't find an electric car big enough for his family and drives a 7-seat Ford Galaxy, however.

Even some Norwegian electric car owners have misgivings about the state's largesse.

"The benefits are ... too good. You can take bus lanes, get free parking and it costs very little to refuel," said Ole Marius Lauritzen, 44, who lives 25 km (15 miles) outside Oslo and used to commute to his work at a bank by bus.

SECOND CAR

Like 40 percent of other Norwegian households with electric cars, Lauritzen's blue Think City car, made by a now-bankrupt Norwegian firm once owned by Ford, is his family's second car.

"It has to be the second car for the family, because it still has a limited range," especially in winter when the cold drains batteries, Lauritzen said as he recharged the vehicle for free in a snow-decked electric car park in central Oslo.

Oslo has 446 parking places with free recharging and the municipality plans to add 800 more at a cost of 59 million crowns ($10.33 million) over the next four years. Drivers can also recharge at home.

The range issue - many can only go about 100 miles or less without recharging - is a huge problem in countries like the United States, where long-distance driving is a way of life.

One U.S. study said 70 percent of drivers surveyed wanted driving ranges of 300 miles before they would consider buying an electric car despite federal tax breaks worth up to $7,500, in addition to state incentives.

By encouraging people who can afford it to buy a second car instead of taking buses and trains, the electric car scheme may ironically be aggravating environmental problems and causing traffic jams, analyst Holtsmark said.

Tesla Motors says its Model S car, due on sale in June, will be able to reach such ranges if driven correctly.

"There is a huge opportunity here ... (for Norway) to set an example for the rest of the world," Tesla Motors' co-founder Elon Musk said in a speech in Oslo this month.

HURTING, OR HELPING?

Experts say electrification with renewable energy is essential if rich nations are serious about goals of cutting greenhouse gas emissions by 80 percent by 2050 - transport now accounts for about a fifth of all greenhouse gas emissions.

European Union member states, for example, are aiming for at least 9 million electric vehicles by 2020, against less than 100,000 now. The group also wants 10 percent of transport in the EU to run on renewable fuels by 2020 - such as biofuels or 'green' electricity, up from 4.7 percent in 2010.

On this issue, Norway again stands head and shoulders above the rest - almost 100 percent of electricity is generated from clean hydropower, so a shift from gasoline and diesel cuts pollution.

But Norway is not the norm. Elsewhere, electric cars may cut pollution locally by eliminating exhaust but are often charged from electricity generated by high-polluting coal-fired power plants elsewhere.

In fact, in places like China, the requirements for electric cars just add to environmental problems.

Many Chinese power plants use coal with few filters, spewing out particulate matter - chemicals, acids and metals - that causes more pollution per km for electric cars than gasoline-powered cars, said Chris Cherry, an electric vehicle analyst at the University of Tennessee.

"In China, electric vehicles may worsen health effects compared to normal cars," said Cherry, who was lead author of a study published in February in the journal Environmental Science and Technology.

The policy also does not stack up in the market established to put some value on curbing greenhouse gas emissions.

Holtsmark estimates that a Toyota Prius hybrid emits 0.6 tonne of carbon dioxide a year against zero for a Leaf. Scaling up the Leaf's subsidies means Norway is paying $13,600 to avoid a tonne of emissions, a stratospherically expensive policy since the right to emit a tonne of carbon dioxide costs about 4 euros on the EU's carbon market.

BIG GAMBLE

Norway's enthusiasm notwithstanding, many carmakers acknowledge the all-electric market has not become as mainstream as they hoped when they gambled billions of dollars on the technology.

Carmakers are shifting from all-electric towards hybrids like the Prius, which has a gasoline engine backed up by an electric motor that traps energy when the brakes are applied.

"Demand for electric cars isn't where we thought it would be," Francois Bancon, Nissan's upstream development chief, said at the Geneva car show last week. "We're in a very uncertain phase, and everyone's a bit lost."

Electric car owners in Norway are already starting to worry about the long-term future of their investment.

"If the bus lane is closed the economic aspect of the car will be terrible," said Are Paulsrud, who drives a Mitsubishi electric car.

"The car cost 250,000 crowns and if the bus lane is closed ... I won't be able to sell it."

(Additional reporting by David Mardiste in Tallinn, Patrick Lannin in Stockholm, Laurence Frost in Paris and Christiaan Hetzner in Frankfurt; Editing by Sonya Hepinstall)