Electric car warning signals as Denmark calculates cost of switch

COPENHAGEN (Reuters) - A rapid switch to electric cars to meet Denmark’s ambitious climate targets will leave a massive gap in its finances, a government commission said on Monday.

Moving to electric vehicles from those powered by fossil fuels is central to Denmark’s goal of cutting emissions by 70% by 2030 and becoming climate neutral no later than 2050.

However, the Nordic country relies heavily on car and road taxes worth some 50 billion Danish crowns ($7.95 billion) a year, or 2.3% of GDP, to fund its welfare system.

In March, the Danish Council on Climate Change, an independent advisor to the Danish government, said the number of electric cars should rise to at least 1 million by 2030 from less than 20,000 now in order to meet the targets.

“This would create a significant problem for the economy,” commission head Anders Eldrup told a press briefing.

Increasing the number of electric cars to 1 million through raised subsidies and higher taxes on fossil-fueled cars would result in a total net loss to society of 5.7 billion crowns in 2030, the commission said.

Under the current tax system, proceeds from car and road taxes are already set to drop by 10 billion crowns each year in 2030, it said.

The commission was asked by the government to suggest how to switch from fossil fueled cars to electric cars in the coming decade without jeopardizing the state budget.

The transport sector contributes about 40% of Denmark’s carbon dioxide (CO2) emissions, with less than 1% of cars powered by electricity.

With favorable conditions and early support from the government, Denmark now gets about half of its power from wind turbines and is seen as a pioneer in addressing climate change.

(This story has been refiled to fix typo in lead)

Reporting by Tim Barsoe and Jacob Gronholt-Pedersen; Editing by Alexander Smith