Electric cars and auto fuel efficiency may create a government revenue challenge

An article in the current issue of Slate magazine highlights the economic changes that may be required as a result of the growing adoption of electric, hybrid, and more fuel efficient vehicles. Unfortunately some governments may even reverse some of their previous support for EVs rather than finding ways to properly address the problem. According to the article, the legislature of the state of Georgia has voted to scrap the existing $5,000 tax credit for electric vehicles and instead charge a $200 registration fee on such vehicles. Washington state already charges a $100 annual tax on electric cars and Virginia has a $64 tax on hybrids. The problem, at least in part, is not that these states want to penalize EV owners but that increasing adoption of EVs is harming state highway-related revenues.

The Slate article states that hybrids, plug-in hybrids, and electric cars account for about 3% of car sales in the US. In addition, vehicle fuel efficiency has increased by 26% since 2007, resulting in a 4% drop in gasoline sales over the same period. From an environmental perspective that is great news, but from an economic perspective it is bad news not only for petroleum companies but also for governments, most of which derive significant revenues from gasoline taxes. The temptation to increase taxes on EVs to counteract falling gas tax revenue is just too great for many politicians.

Oregon is reportedly planning to pilot a road use tax system that is based on miles driven – a fully automated road toll system. The amount a driver pays would be based on the number of miles driven, regardless of the fuel used. The toll system would partially or wholly replace fuel taxes. A mileage-based road tax, perhaps also linked to vehicle weight, another important factor in wear and tear of roads, would seem to GallonDaily to be a much more fair system for raising funds for road construction and maintenance than a fuel tax. Available technology, already being used by some auto insurance companies to monitor driving habits and adjust insurance rates accordingly, could automate the tolling process at relatively low cost.

Such a scheme may be more fair and have greater environmental advantages than fuel taxes but it will still be a very tough sell to voters. It is a dialogue with which environmentally concerned organizations and voters should consider engaging.

The Slate magazine article referenced above, with a more in-depth approach than presented here, is available at http://www.slate.com/articles/business/the_juice/2015/04/georgia_passes_200_electric_car_fee_why_are_states_punishing_people_for.html

GallonDaily’s editor is a happy driver of a mostly electric vehicle for which he has received some Ontario government incentives.

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