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Everyone is looking forward to how awesome it will soon be to have electric vehicles replace gas-powered ones on our roads!
Everyone except the people responsible for road maintenance. That’s because fixing pavement, laying new roads, plowing snow, fixing bridges, and cutting roadside vegetation is paid in substantial part by fuel taxes. We must figure out how to replace that revenue right now before EV ownership hits in full. Otherwise, we’ll end up with accelerating neglect on our road infrastructure as well as burgeoning deficits from politicians unwilling to enact necessary but unpopular fiscal solutions.
How much fuel tax money will be lost?
Before we panic, how much money is gathered from fuel taxes and how much do our roads require?
In 2018, the US collected about $50 billion in fuel taxes at the state level, while the federal excise tax on fuel added another $36 billion on top. At nearly $90 billion, it’s a huge source of revenue.
Unfortunately, that’s still a massive shortfall from the amount needed to upkeep our roads. In 2018, state and local governments spent $187 billion on highways, local roads and streets, and mass transit systems. Although the US government runs a Highway Trust Fund that tries to keep state governments properly funded, it’s been operating at a deficit that’s expected to grow to $200 billion by 2030. And there has been a persistent roadway underfunding that’s resulted in a $786 billion backlog of road and bridge repairs.
Playing revenue catchup
As it should be no surprise, states are seeing this revenue shortfall coming, and many have already acted by passing additional EV-centric licensing laws. This has resulted in seventeen states with an annual fee for owning an electric vehicle.
With amounts between $50-200 per vehicle per year, these additional EV, PHEV, and hybrid fees are far too small to replace the evaporating fuel tax. But we can expect that increased vehicle fees through new licensing requirements, curb weight taxes, or other use taxes will become a commonplace tool used by governments to make up for the loss in fuel tax revenue.
Pay to play
One thing we’ll definitely see more of is toll roads. In a perfect world, tolls are an ideal way to fund road maintenance, since those that drive on a road are the ones paying for it. However, because tolls aren’t universal this doesn’t work out perfectly. Tolls are typically only on selected major thoroughfares, which forces lower-income drivers onto non-toll roads with poorer maintenance, sorting society by an ability to pay.
Electronic toll collection systems (ETCs) also can be a bit of a logistical nightmare because of their transponder systems. Who wants to take a cross-country drive that needs 10 different transponders to pay for the tolls encountered? Perhaps it won’t be a huge surprise, but although national transponder cooperation has been mandated since 2016, the law has no enforcement teeth so it’s been ignored while interoperability issues remain.
EVs: the problem and the solution
With most nearly all new EVs having GPS and connectivity, both major problems with existing tolls and transponders can be solved. Since the car can report the roads it drives on, drivers could pay for exactly what roads they use and nothing more. That would allow the lion’s share of maintenance funds to go to the roads that are used most often. It would also help governments predict and plan better for growth.
Privacy concerns that come with our cars reporting on our whereabouts seem like a major obstacle since most of us in the modern world take for granted our ability to travel anonymously. Having the government monitor our movement – even just for toll collection – seems a bridge too far. However, a system like this can be built with privacy concerns in mind. The 407 express toll route (ETR) in Toronto scans every license plate that passes onto the toll road, but you can still use it completely anonymously. (Notably, this system also doesn’t need a transponder to operate: it scans license plates visually and looks them up in the license plate registry.)
We can expect increased vehicle fees through new EV use taxes will become a commonplace tool to make up for the loss in fuel tax revenue.
How much will our roads cost us?
Assume for a second that we switch from fuel tax to per-mile EV use tax (or equivalently a ZEV use tax). How much would it then cost us to drive?
Again using 2018 as a sample year, Americans logged just over 3.2 trillion vehicle miles. To just replace the existing fuel tax would only ring in at about 2.5 cents per mile. However, that’s without confronting the transportation funding deficit or road construction backlogs, and it assumes the federal government will still be massively borrowing against our future. If we want to fully fund road management – meaning we paying off all road-incurred debts and backlogs without external budget – our per-mile fee rises to about 12 cents.
Can we accept an EV use tax?
If 12 cents per mile seems an excessive fee, it’s instructive to compare it to gasoline.
While gasoline taxes might seem large, they’re tiny when extrapolated to a use-per-mile figure. With a middle-of-the-road $0.33 per gallon fuel tax and an average 22 MPG car, we’re only paying 1.5 cents per mile for the use of our road network today . As already stated, that amount is far from enough to keep ahead of road repairs. However, from the driver’s perspective, that is just a fraction of the driver’s actual per-use cost. They pay for the gasoline too, and with an average of $3.62/gallon, that brings the true cost of ICE driving at 16.5 cents per mile.
That means that even if the government starts charging EV use taxes at a generous 12 cents per-mile to keep our road infrastructure sound, EVs would still cost drivers significantly less to operate than gasoline-powered vehicles. They’d be fully paying for road system maintenance and growth, require less money from the federal government, be able to pay off the deficit in the Highway Trust Fund, and chip away at the road infrastructure backlog.
All the while helping to save the planet.