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The perception that EVs don't pay their fair share of fuel taxes may not be the most productive way to look at funding highway projects.

Clean Transport

Is Road Pricing The Way To Equalize Electric- & Gas-Powered Vehicles?

The perception that EVs don’t pay their fair share of fuel taxes may not be the most productive way to look at funding highway projects.

The transportation sector in the US generates the largest share of greenhouse gas emissions — 29%. Soon, however, more cars on US roads will be greener and cleaner with consistent EV adoption. Lower costs of driving EVs is helping to incentivize their purchase and to point the way toward a net carbon zero future. However, with more EVs comes reduced tax revenue from weakened gasoline sales. Critics say that EV owners aren’t doing their part and that US roads will deteriorate unless EV owners pay their fair share. Road pricing has been floated as a solution to a complex problem.

Highway construction and maintenance are in trouble. Once upon a time, taxes on gasoline and diesel fuel were enough to support the US web of roads. However, those taxes are no longer sufficient.

  • Costs for road construction labor and materials have risen through inflation — but gas taxes haven’t been reshaped accordingly.
  • Average vehicle fuel efficiency has increased from 18.8 mpg in 1990 to at least 22.3 mpg in 2017 for all light-duty vehicles, with new passenger cars able to achieve 39.4 mpg and new light-duty trucks able to achieve 28.6 mpg — thus lowering gas tax revenue.

The US is not alone in this dilemma. The Tony Blair Institute for Global Change outlines that the cost of petrol, fuel duty, and vehicle excise duty in the UK is about £1,100 a year for the average petrol or diesel car, while for electric vehicles it is only £320. That reduces the overall cost of driving by 71% and drops the Treasury’s tax take – £10 billion by 2030, £20 billion by 2035, and £30 billion by 2040. The Institute argues that road pricing could “slash congestion, maintain tax receipts, and mitigate unfairness – delivering better outcomes both for drivers and other road users.”

Do technological innovations needs to be structured so that contemporary systems can keep up? Specifically, what new approaches to the way individuals use roads need to be considered to address revenue shortfalls?

What is the State of US State Road Funding Right Now?

The system of taxing car usage to pay for road maintenance is based around taxing fossil fuels, which means EVs are much cheaper to drive. Yet EVs at this moment in time comprise only about 3% of the total vehicles on US roads and highways.

A new gasoline-powered car would use almost 300 gallons of gasoline per year and pay about $73 in state gas taxes. It’s not enough. Already, many US states are experiencing a severe shortage in the revenue needed to maintain highways.

For example, Plug In America says the transportation funding shortfall in Massachusetts is estimated at $650 million per year. The state has approximately 30,000 electric vehicles (EVs), including both BEVs and PHEVs. Applying a registration fee of $100 per year to each one (similar to what has been proposed in other states, and more than would be paid in-state gas tax by a new gasoline vehicle) would generate about $3 million per year, covering 0.5% of the funding gap.

To impose a punitive registration fee, they say, road usage charge, or other penalties to EV drivers would hinder the adoption of clean vehicles and do little to cover the funding shortfall.

Currently, 20 states have EV registration fees, ranging from $50 to $200. New Hampshire wants to remedy the funding shortfall from higher fuel efficiency penalizing all efficient vehicles – including EVs.

What Do EVs Already Pay toward Road Maintenance?

EVs do pay taxes that can be directed toward road construction and maintenance. EVs can cost more than their internal combustion engine (ICE) counterparts, so they demand higher sales taxes where applicable and higher municipal excise taxes. An Acadia Center analysis points out that in Massachusetts these impacts result in EVs contributing more to state and local revenues than comparable ICE vehicles. EV drivers pay taxes on the electricity used to charge the vehicles, too, where applicable.

An EV that costs $35,000 before rebates would pay about $93 less per year in gas taxes than a comparable conventional sedan, $101 more in average annual excise tax over the vehicle’s lifetime, and $908 more in sales tax. Extend that equation to an EV priced over $60,000, and you get the picture.

Road Pricing & Other Approaches to Address Highway Needs

A variety of approaches might be considered to fund highway upkeep moving forward.

Raise the price on gasoline at the pumps. Increasing the level of taxation is an option, but it would ask the last ICE drivers to pay the entire amount necessary to maintain US highways. While such a plan would accelerate the transition to EVs, it would do little to address congestion and would be hugely unfair to those unable to afford EVs.

Elevate the taxes that EVs pay. A number of states are charging electric vehicle owners extra fees. Consumer Reports says that consumer advocates are arguing these fees are actually higher than what the drivers of equivalent gas-powered vehicles are paying in gas taxes, potentially discouraging the important environmentally friendly technology of EVs.

Charge more for the electricity that EVs use. On first glance, this approach makes sense. After all, if it is necessary to shift the burden of road maintenance to EV drivers, then charging them for their energy is prudent. However, digging deeper into this proposal exposes flaws. Yes, it is similar to the current model, but charging more for electricity would be technologically difficult and has the real possibility of slowing the transition to EVs.

Road pricing, which the Institute breaks into 4 four broad categories:

  • Flat rate per mile: Road users are charged for each mile they drive. With a simple per-mile charge, the flat rate could vary by vehicle weight and fuel consumption to reflect the trip and vehicle’s greenhouse-gas and air-pollution impact as well as the damage done to the road network.
  • Geographic or toll-based charging: Costs vary depending on geographic area or specific roads, with cost being focused on areas with higher congestion levels. The charges can depend on the time of day and are capped at a daily maximum.
  • Time-based rate: Road users are charged for each minute spent driving.
  • Dynamic rate: If it makes sense to have more expensive electricity chargers during high demand hours of the day, then it makes sense to charge more for commuter rush hours than it would for driving at dawn. Usage would be monitored with a device similar to the E-ZPass for tolls in the eastern US, and charges would vary the cost of driving on the same piece of road depending on the time and the traffic conditions.

The Institute recommends that any road pricing enactment should:

  • avoid perceived attacks on motorists
  • make transparent the whole cost of driving beyond fuel on society
  • recognize the fairness differential on socioeconomic groups
  • protect privacy
  • be simple
  • be predictable
  • include a plan for a steady pace of implementation
  • balance the roles of government and the private sector
  • be cohesive with wider transportation policies

Plug In America supports the eventual development of a road usage charge program, outlining the criteria for determining the annual fees should be total electric miles driven, total gas miles driven, and weight.

With the Biden administration’s announcements about transitioning to EVs by 2050, doesn’t it make sense for the government to signal its intent to introduce a form of road pricing in the near future? Current pilot programs around the US could be deconstructed for broader application. In that way, advanced notice will begin the process to compensate for the loss of fuel taxes and to set the proverbial stage for detailed proposals to be disseminated.

An in-depth white paper on transportation funding and EV fees is available here.

Image copyright-free from NASA.

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