Electric vehicles serve the public good — they reduce local air pollution and greenhouse gas emissions. But these social benefits are not reflected in the price of the vehicles, which remain, at this stage of market development, somewhat more expensive than comparable internal combustion engine (ICE) vehicles.
That is why EVs are the target of a range of supportive public policies, from a $7,500 federal tax credit to various state-level incentives, including tax credits and exemptions, access to special highway lanes, and rebates on charging equipment.
The oil industry — which now faces a serious threat if more optimistic EV forecasts play out — does not like these policies one bit. To complement their ongoing war on solar power, the Koch brothers are organizing a $10 million a year campaign against pro-EV public policies under the banner of “Fueling US Forward.” It is, in creepy Koch fashion, courting minorities by seeking to convince them that EV policies hurt their communities. ALEC, the state-level right-wing group that writes “model policies” for state Republicans, recently passed a “Resolution Regarding Subsidies for Electric Vehicles.” (Spoiler: They’re against.)
These efforts have met with limited success. There is one area, though, where state policy is directly chipping away at support for EVs: fees to raise transportation money.
EV fees are spreading
At the end of 2015, the Department of Energy identified nine states that levy extra yearly fees on purchasers of EVs. Since then, Michigan added a fee, so the number now stands at 10.
As the Sierra Club reports, “since the start of 2017, six states (Indiana, South Carolina, Kansas, Tennessee, New Hampshire, and Montana) have introduced legislation that would require EV owners to pay a fee of up to $180 a year.”
Here’s the table, from Car & Driver:
Car & Driver table
State Fee Year Cars Affected
Wyoming $50 2015 EV and PHEV
Colorado $50 2014 EV and PHEV
Virginia $64 2013 EV
Nebraska $75 2011 EV and PHEV
Missouri $75 2011 EV and PHEV
Washington $100 2013 EV
North Carolina $100 2014 EV
Idaho $150 2015 EV and PHEV, plus HEV ($100)
Georgia $200 2015 EV and PHEV ($300 for commercial use)
Michigan $100 2017 EV ($200 for heavy-duty) and PHEV (only 4 kWh or more, $30)
EV fees (Car & Driver)
Happily for EV advocates, Car & Driver also reports that “at least 10 states have tabled such bills, including Indiana, North Dakota, South Dakota, and Utah this year. Massachusetts, New Jersey, South Carolina, Arizona, Texas, and Kansas (which wanted EV owners to install separate charging meters in their homes) all failed to enact fees over the past couple years.”
So this battle is ongoing.
From a policy perspective, state EV fees are somewhat perverse. In effect, they override the federal decision to support EVs. The federal tax credit now gets partially diverted into state coffers.
The dysfunctional politics of the gas tax
There is undoubtedly some conservative sentiment and oil money mixed up in these decisions, but the primary driver seems to be states’ desperation for infrastructure money.
Typically, maintenance for roads and highways is paid for with a mix of federal gas tax revenue and supplemental state revenue from gas taxes and other sources.
But the federal gas tax is broken. Infrastructure costs have risen, but the tax has been stuck at 18.4 cents a gallon since it was last raised in 1993. (That’s when brand new Vice President Al Gore cast the deciding vote for a tax hike in the Senate).
Even when the tax was raised, in 1990 and 1993, part of the revenue was diverted to deficit reduction. (Eye roll.)
US voters, as is their wont, want good roads but they don’t want to pay for them. Raising taxes is rarely popular. And US Republicans remain theologically opposed to any new tax revenue; in 2015, Paul Ryan declared Congress is “not going to raise the gas tax.” So the tax is stuck.
What’s more, ICE cars are growing steadily more efficient, which means they are using less gas, which means they are paying less in gas taxes. According to Brookings, in absolute terms, gas tax “revenues peaked in 2007 at $25.7 billion and have slowly dropped ever since.” But when you adjust the tax rate and tax revenue for inflation, “revenues peaked at $28.8 billion in 1994.”
Meanwhile, population, the number of cars, vehicles miles traveled (VMT), and the need for infrastructure repairs have all risen substantially since 1994.
So every year, Congress goes through increasingly absurd shenanigans to find “temporary” transportation money.
And states are doing the same frenzied dance. According to a 2011 report from the Institute on Taxation and Economic Policy, “the average state has not increased its gas tax rate in over a decade, and fourteen states have gone twenty years or longer without an increase.” Governing magazine reports, “in 37 states, inflation-adjusted revenues from fuel taxes slipped since 2000.”
The case for taxing EVs is weak
Various states are trying to find fairer, more reliable means of raising transportation funds. Oregon is testing a voluntary system called OReGO, which allows users to a pay a per-mile fee rather than fuel taxes. That idea — a VMT tax — is popular internationally, but so far only Oregon has experimented. The Massachusetts Senate wanted to set up a similar test, but Republican Gov. Charlie Baker opposed it. The Illinois legislature has also supported the idea. A few states are charging increased fees based on vehicle weight.
And yes, some states (10 and counting) are targeting EV buyers. The logic is that EVs use roads and highways but don’t pay for their upkeep through gas purchases.
This is facially reasonable. It has convinced lots of state lawmakers, many of whom are likely predisposed to see EVs as hippie toys anyway. (Georgia recently scrapped its EV tax credit, imposed an EV fee, and watched EV sales drop 90 percent.)
But it does not hold up under scrutiny. For one thing, in terms of lost gas tax revenue, EVs are a blip, a footnote. There are just over a half-million EVs on the road.
Meanwhile, there are an estimated 260 million registered passenger vehicles in the US. The lost tax revenue from the 0.2 percent of the fleet that’s gone electric is not the root of the problem.
The real culprit is increasing fuel efficiency among ICE vehicles.
Gas taxes haven’t been raised in ages and ICE vehicles have become increasingly efficient — that’s the state transportation revenue crunch in a nutshell. To date, EVs have had very little to do with it.
Also, again, there are important public health reasons to reduce emissions of local air pollutants and greenhouse gases. Those are both explicit US policy goals. We want people to burn less gasoline. We have all sorts of policies in place to make that happen, from fuel economy standards to EV tax credits to enormous, inefficient ethanol subsidies.
It is perverse for states to turn around and inhibit this emerging market with new fees, in pursuit of a relatively paltry amount of revenue. That’s why the Vermont Agency of Transportation, which has studied the proposal for fees several times, recommended holding off until “the market for EVs moves beyond an ‘early adopter’ phase,” which it defines as around 15 percent market share. “To increase the fees now,” it says, “is at cross purposes with the state’s efforts to incentivize EV purchase and use.”
Of course, EVs will eventually reach that kind of market share. BNEF expects EVs to hit 35 percent of global new vehicle sales by 2040.
If the US hits something like those numbers, it would put a serious dent in gas tax revenue. But that’s decades out, and surely, by then, we will have figured out a saner way to fund transportation infrastructure.
Gas taxes are crude. We need a better system.
As has been clear for many years, as a way of funding transportation infrastructure, gas taxes are both inadequate and hopelessly crude.
For one thing, as we’re seeing, it creates a perverse incentive for states to keep people burning gas, or to penalize them for burning less. If states are going to tax EV buyers for not buying gas, why not tax owners of fuel-efficient ICE vehicles for burning less gas? Why not tax bus passengers, bicyclists, or pedestrians? They’re not buying gas either, but they’re using the roads.
At the very least, we need a more fine-tuned user fee, based on VMT, vehicle weight, or some combination thereof.
Beyond that, we could stop thinking of transportation as roads-and-highways and start thinking more holistically about coordinated, multimodal transportation systems. We could be clear about the kind of systems we want, what they will do for us, and how much they will cost. And we could pay for them out of general tax revenue, since functional transportation systems benefit everyone. (I realize this is all an idle dream.)
Either way, if states aren’t willing to do anything innovative, at least they could raise the damn gas tax. Going after EV buyers is just a way of looting a constituency that is not yet big or organized enough to fight back. That won’t be true for long.