How to solve for EV sales triggering lower gas-tax
The federal gasoline tax is part and parcel of Americans filling
up their internal combustion engine cars at the pump. But what
happens when the pump is spitting electrons?
Growing adoption rates for electric vehicles (EVs) means
decreasing gas tax revenues. The US Highway Trust Fund has been
underfunded for decades, and as trust fund revenues decline, the
shoddy quality of American roads could worsen. Covering that
shortfall was the topic of a CERAweek panel featuring several key
A new taxation system is needed to help fund existing and future
roads and safeguard future government taxation revenue. As such, is
road pricing inevitable? Several solutions are being analyzed and
in pilot stages, but all seem to have blind spots for either
consumers, legislators, or industry.
“We have a huge problem,” said Barbara Rohde, executive director
of the Mileage-Based User Fee Alliance (MBUFA), a non-profit based
in Washington DC. “We’ve been taking money from the general fund
since 2008 to pay for our highways. By 2033, we will have a deficit
of USD250 billion because of the rate of growth of EVs and
Although EV market share is still in the single digits in the
US, it is likely to reach 40% by 2030, according to S&P Global
Mobility forecasts. By that year, the total number of EVs in
operation could reach 28.3 million units.
The tax rates on gasoline and diesel fuels have not changed
since 1993 and thus have failed to keep pace with inflation, noted
David Sandalow, inaugural fellow for the Center on Global Energy
Policy at Columbia University. “Blaming the shortfall on EVs is to
miss a major part of the story,” Sandalow said.
Laying a new tax on EV buyers may in turn disincentivize the
programs pushing people to join the electrification crusade, said
Levi Tillemann, vice president of policy and international outreach
for Ample Inc, which focuses on modular battery swapping.
Tillemann also is strongly against a proposed tax based on
vehicle miles traveled: “When a dually pickup truck pays the same
tax as a Prius, you are incentivizing fuel inefficiency. We need to
target the issues that isolate pollution, we need to look at energy
security, we need to look at gasoline consumption in the actual
“We’re spending a lot of money to subsidize EVs, battery cell
manufacturing, battery pack manufacturing, construction of the
factories, the actual EVs consumers are buying, the recycling and
refurbishing of batteries,” Tillemann added. “We don’t want to
disincentivize the output of electric vehicle miles traveled. Every
mile you transfer (from internal combustion) to EV is a win for
climate. We should do everything we can to incentivize maximum
utilization of EVs. I would subsidize every mile EVs drive for some
The MBUFA has started limited-scale pilot road use tax programs
in 38 states, including Hawaii, Oregon, Utah, and Virginia, Rohde
said. “We need to make people believe it’s in their interest to
sign up. Many states have high registration fees, so people turning
to the user fee are feeling it’s more fair.”
Sandalow recommends a surcharge that combines vehicle miles
traveled and vehicle weight, which he said would more fairly
address road wear and tear. For EVs, there could be an electricity
surcharge, but there are practicalities of metering electricity
usage for those who charge at home, as well as privacy
If tax rates had been indexed for inflation since 1993, the
current tax on gasoline would be about 33 cents per gallon, while
diesel fuel would be taxed about 44 cents per gallon, according to
the Tax Policy Center.
So why not simply account for inflation since 1993, and raise
the gas tax to where it should be? Because the anti-tax sentiment
among legislators in many states will perceive this as an added
tax, even if it is merely correcting for poor fiscal accounting,
But something needs to be done. On the global scale, American
roads rank 17th, according to the World Economic Forum, trailing
countries including Portugal, Spain, and Croatia.
Tom De Vleesschauwer, senior director of transport and mobility
for S&P Global Mobility, noted that EV-crazed Norway is
realizing that the lack of road taxes coming from a shrinking
number of CO2-spewing cars is becoming an issue.
Where do Norway’s roads rank? A distant 49th place.
By Mark Rectin, Executive Director and Executive Editor, S&P
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.