Governments around the world have long encouraged motorists to buy electric cars. Now they are starting to grapple with a consequence of the green drive: dwindling income from fuel taxes.

Several countries have sought to phase out gasoline and diesel cars by offering tax and other incentives to drivers who buy new electric vehicles, part of broader efforts to cut carbon emissions. But in places where more EVs are hitting the road, income from fuel tax, which often accounts for a significant chunk of public revenue, is falling.

In Norway, home to the world’s highest electric-vehicle uptake rate, lawmakers have scrapped tax breaks on electric cars as they try to plug a hole in tax revenue. In the U.K., where fuel taxes account for some 7% of annual income, lawmakers are studying a potential new levy based on how much people drive instead.

Electric-vehicle uptake remains low in all but a few of the world’s wealthiest countries and the tapering of tax income is expected to be gradual. Still, the conundrum highlights the costs and challenges of decarbonizing the wider economy, with cutting emissions from transport seen as key to hitting global climate goals. How early-adopter countries handle the transition will likely be closely watched in places like the U.S., where lawmakers hope to boost electric-vehicle sales, partly through tax credits.

President Biden’s bipartisan infrastructure bill includes specific references to bolstering the U.S.’s EV charging networks. That’s led to a group of automakers dramatically boosting their 2030 EV sales predictions, even though the bill hasn’t been signed yet. WSJ’s George Downs takes a look at what that could mean for your drive. Illustration: George Downs

In Norway, more than two thirds of new cars sold so far this year have been battery or plug-in electric vehicles, according to research group Rho Motion. That compares with just 4.6% of all cars sold globally last year being electric, according to the International Energy Agency.

“I would definitely advise other countries to look at what’s happening in Norway with quite rapidly falling revenue and to be aware that there might be a consequence of tax incentives,” said Magnus Thue, state secretary in Norway’s finance ministry.

A finance ministry spokesman said the sharp loss in tax revenue was “difficult to foresee” when incentives were introduced in the 1990s and 2000s but that successive governments had kept them in place to reduce emissions. The hole in public finances has been partly filled by higher taxes elsewhere, he added.

Norway’s Labour Party, which is set to lead a new government after winning a national election earlier this month, favors taxing the purchase of emissions-free vehicles over the value of $70,000 and the introduction of GPS-enabled road pricing, its climate spokesman said.