How Can Tiny Norway Afford to Buy So Many Teslas? (Ep. 182)

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(Photo: Tesla Motors)

(Photo: Tesla Motors)

Until recently, tiny Norway (population 5 million) has been the second largest market for Teslas (after the U.S.). Earlier this year, Tesla’s Model S became the best-selling car in the country ever for a one-month period. Not bad for a luxury electric vehicle whose base price in Norway is over $100,000. What’s behind this Tesla boom?

That’s the question we try to answer in this episode of Freakonomics Radio. It’s called “How Can Tiny Norway Afford to Buy So Many Teslas?” (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

It turns out that Teslas, along with other electric vehicles, are massively subsidized by the Norwegian government. Tesla’s website advertises the generous incentives available to Norwegian buyers, including exemptions from very hefty sales taxes. What does that do to the net price of a Tesla? We asked Martin Skancke, a former high-ranking government official:

MARTIN SKANCKE: The difference between the price of a Tesla and the price of a similar gasoline-driven car is huge in Norway compared to other countries. So in relative terms, the Tesla is a lot cheaper than other cars.

By most measures, Norway is among the greenest countries on Earth. It gets virtually all of its electricity from hydropower; it plans to cut its greenhouse emissions by 30% by 2020; and it has more electric vehicles per capita than any country in the world. But Norway is also the biggest oil producer in Western Europe and the world’s third-largest exporter of natural gas. All that petroleum money allows Norway to subsidize its green lifestyle; it has also helped create what is now the largest sovereign wealth fund in the world, soon projected to top $1 trillion.

You might think that discovering all that petroleum would be an unambiguous blessing. But Norway’s economy struggled in the beginning, thanks to an affliction known as “Dutch Disease.” (The Netherlands faced similar faced similar problems after it began exporting natural gas.) As explained by Daron Acemoglu, an MIT economist and co-author of Why Nations Fail:

DARON ACEMOGLU: The economy becomes too specialized in the production and the export of the natural resources, crowding out the other sectors of the economy.

Norway created its sovereign wealth fund in large part to avoid this malady, and to ensure future prosperity for its citizens.  Martin Skancke was one of the civil servants tasked with creating the fund:

SKANCKE: So I think it was seen primarily as a tool to stabilize the economy and to introduce sort of a buffer between the very volatile oil revenues and the non-oil economy.

“Dutch Disease” is, as Acemoglu tells us, just one facet of what is more broadly known as “the natural-resource curse”:

ACEMOGLU: What the abundance of natural resources does is it incentivizes lots of groups to become much more conflictual in order to take control of state institutions, be able to be become politically powerful, or blocking actors in order to be able to benefit from these natural resource rents. And the extreme form of this is the sort of civil wars that have ravaged countries like Sierra Leone and Angola where diamonds, another form of natural resource that’s perhaps even easier to mine and exploit than oil, have played a major role, or the huge political instabilities that have erupted in places like Venezuela and Nigeria around the oil economy.

The fact is that Norway is the only liberal democracy among the countries that have the richest sovereign wealth funds, a list including Saudi Arabia, China, the United Arab Emirates, and Kuwait.

Special thanks to Dag Lausund at Innotown, who inspired this episode, and to Norwegian journalists Solvår Øyen and Sindre Leganger for on-the-ground reporting. Check out Leganger’s Norwegian language podcast NRK Radiodokumentaren.

Thanks also to Jay Cole at Inside EVs, John Stoll at The Wall Street Journal, Chuck Jones at Forbes, and Angelo Young at The International Business Times for helping us sort through electric-vehicle sales data.

Matt Grason

I don't think there is any conflict in Norway's use of its sovereign wealth fund to subsidize electric cars. They are supporting a nascent electric car industry. As it matures, electric car prices will fall. In so doing, they are using their wealth they've acquired to do what needs to be done globally -- to transition away from coal, oil, and gas to clean energy. The Rockefeller Family -- whose fortune was amassed from oil -- just announced that it is removing coal, oil and gas investments from its $860 million Rockefeller Brothers Fund. That's not hypocritical, it's forward thinking.

Jørn Ivar Hamre

Price collapse in the Norwegian second-hand Tesla market
October 9th the prices of the premium Tesla Model S collapsed second-hand market. Off course, the reason was the news about the coming 4x4 Tesla that everybody wants in the land of oil, subsidies and equality...

Ralph Kramden

Steve, there is no Z in Tesla!

Stephen J. Dubner

That's how Elon Musk (Tesla founder) pronounces it and, FWIW, it's the pronunciation I always heard for the namesake Nikola Tesla, long before there was a car company with that name.


I'm kind of perplexed by one statement made by Daron Acemoglu, about manufacturing jobs being "generally thought to be the higher-paying jobs". That's never been my perception, nor (I think) that of most people I know, to whom manufacturing jobs are things that could be done by robots if humans didn't work cheaper.


Is it just me or is Dubner's pronunciation of Tesla annoying anoyone else? He keeps saying "Tez-la" rather than a soft "s". Driving me mad, got to get past it to listen to the full podcast.

Stephen J. Dubner

That's how Elon Musk (Tesla founder) pronounces it and, FWIW, it's the pronunciation I always heard for the namesake Nikola Tesla, long before there was a car company with that name. (That said, sorry it drives you crazy.)


Thanks Dubner, for the clarification on the pronunciation. I'm facinated by the differences in pronunciation both geographical and cultural so I guess this triggered it. Maybe a new topic for a future podcast? Keep up the good work!


it was really a great one.thanks so much.


Stephen J. Dubner, I'm a new listener of your podcast. It was a good idea to include some podcasts in the end of the "Think like a Freak" audiobook.

English is not my native language (I'm Brazilian). Reading your books was a fun way to improve my English reading. And the audiobook helped a lot with the listening skill. I will try to comment here once in a while to improve writing too.

Thanks you for making economics such an interesting subject.


What was the piece of music used at the end of this episode? It was pretty cool. Also, somebody send me a Tesla. ;)


Clay Ross - Zydaco Mondo

Fred Bartlett

The retail price (per US gallon in US$) of gasoline in Norway was $9.79 in April 2014. This is the highest price in the world. I did not hear this mentioned in the podcast.

Venezuela has a subsidized price of .04 US cents per gallon.

John E. Laine

Fantastic reporting ! This was a very interesting, and wildly unexpected interview.


On the raidio this morning, they ran a story about Alaska and how all of the government services are ran on oil money.
I wonder if a state like Alaska can put their oil in a sovereign state fund and reap the benafits in the future, rather than spend it and give it back to their citizen?

Jessie Henshaw

I hope you got some of this story from me... I have for several years seemed to be an extremely lonely voice pointing to how false our green accounting is, counting resource uses within some boundary, national accounts, or business accounts, and ignoring that businesses and economies are truly global systems, that have no boundaries.

The science that explains how to work with that reality truly changes the terms of discussion, unfortunately, perhaps the reason anyone I explained it to tended to not tell anyone else. What we've been calling "sustainabilty" is exporting our energy demands to so our biased accounting method counts them as impacts of other countries or businesses. Perfectly logical the way people respond, just cover up the problem, not really even realizing that's what was being done because the accounting methods being used made that falsification of results seem completely natural.

Anyway, it's high time we started getting it straight. What measures your true CO2 impact is the total energy consumed in delivering all the services a business requires... NOT... just the fuels burned that can be traced through business accounts. Same for national CO2 impacts. When you look at it that way it becomes quickly obvious that we've gone along for years, decades and more thinking that all we needed to do was add up what we could count. Now it appears we need to count what we pay for... and for most of what we pay for we have no data of any kind except that we got the service desired, but we've been counting the impacts paid for we don't have information for as "zero" for lack of information.

What the science shows is that "average" is the necessary first assumption for the embodied energy of expenses we can't trace. That changes everything, and holds up on closer inspection from every way to check it found so far. The simple, and simply embarrassing, example is a 6oz $6 glass of wine, as average CO2/$GDP, as is very likely considering the extreme diversity of people it hires to deliver it to you, puts 6lbs of CO2 into the atmosphere. Like drinking 6oz of wine from a 6lb CO2 glass. This is the reason we are miscalculating our future,... and all it takes to close the CO2 accounting is to consider the impacts as "shares of the whole".


also re: Analysis: Who wants what from the EU 2030 climate package



If someone looks at the time Libya and Norway started exploring oil there wasn't that much difference.At that time I believe Norway wasn't more stable than Libya and the latter had no conflicts and was homogeneous. Nowadays Norway is a very rich country with a fund almost reaching 1 trillion dollars, citizens driving Tesla in the streets and what is more important a well-educated workforce. On the other hand Libya is facing a lot that risks its independence.

Ben Millstein

Former Governor Jay Hammond of Alaska created the Permanent Fund in response to the states sudden wealth. It has been popular in Alaska and he recommended it be used as a model for Iraq after our second invasion. His idea was that public benefit from development of the resource would result in public "ownership" of the resource, policies, and politics of the nation resulting in more involvement and responsibility. Of course his recommendation was not listened to, and I doubt he expected it to be. After all why give the resource to the people who deserve it if your intention was to steal it for yourself from the beginning. But that aside; it would be nice to hear where the permanent fund falls in the resource curse continuum, or the "how nations fail" barometer.


What a fantastic guest. Great to hear from such an expert.

I live in Norway (not Norwegian) and I think there are two quite large problems here.

Property prices could be considered a bubble, having rising around 400% in the last decade and Norway has some of the largest personal debt in the world.

Also, your guest mentions a highly educated workforce, but outside of oil and gas (which imports a lot of workers anyway) there really is not many places for educated young people to work. Employment rates hide i think massive underemployment, massaging of figures (through sickness and denying benefits) and the high education itself keeps people studying, in some cases well into their thirties, which is a bit ridiculous.

I think that without the property wealth funding lifestyles, I think more people would be asking similar questions like you did about Sweden.

Great show!

Tom Cronin

"SKANCKE: So I think it was seen primarily as a tool to stabilize the economy and to introduce sort of a buffer between the very volatile oil revenues and the non-oil economy."

In addition to a buffer against short-term effects, the sovereign wealth fund serves to protect future generations against the eventual exhaustion of oil supplies. For these reasons, it would seem imprudent at best for the sovereign wealth fund to be invested in oil company stocks. My income comes from one company, but in my 401k I only have the minimum amount in company stock. This not hypocritical, it is common sense.