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Report: Electric vehicle tax could revive Highway Trust Fund

Hole in fund caused by electric vehicles can be plugged with gas-tax approach, according to ATRI

The shortfall in Highway Trust Fund revenues caused by electric cars and trucks can be eliminated through an electricity tax that has the potential to achieve the same collection efficiency as the federal fuel tax, according to a new study.

“Electric Vehicles and Infrastructure Funding,” an analysis released Wednesday by the American Transportation Research Institute (ATRI), estimates that a tax of 2.1 cents per kilowatt-hour on a battery-electric vehicle (BEV) is equivalent to what is paid by carbon-burning vehicles through the existing gas and diesel taxes.

“This analysis demonstrates how an electricity tax can easily emulate all the key components of a fuel tax,” said Paul Enos, CEO of the Nevada Trucking Association. “Moving forward with an efficient utility-based approach will help EV owners support the infrastructure that they use every day.”

The study notes that while BEV production is growing, the vehicles’ users currently do not pay federal fuel taxes, causing a shortfall in the Highway Trust Fund (HTF), which is used to pay for roads and bridges. “Projections indicate that the U.S. BEV fleet will increase by a factor of fifteen in the coming decade, further depleting HTF income,” ATRI states. The group estimates this will produce a gap of more than $1 billion annually in the coming years.

However, partnering with electric utilities on a tax on the electricity used by BEVs “represents an opportunity for the federal government to collect revenue based on highway use. Like gasoline and diesel tax revenue, that money would be reinvested in the nation’s infrastructure through the HTF.”

Some states are already collecting highway taxes from BEVs using annual registration fees. Others, like Oregon, are planning EV pilot projects using a vehicle miles traveled (VMT) tax. ATRI points out that unlike registration fees, the VMT tax can collect revenue from EV drivers based on use, which maintains the “user-pays” principle of the fuels tax. But ATRI cautions that the cost of a VMT tax approach to EVs can be high.

A study released by ATRI earlier this year found that a federal VMT program would cost over $20 billion annually in administrative fees and compliance costs to collect $35 billion in revenue. “This cost is in stark contrast to the federal fuel tax, which is collected from approximately 300 distinct companies and costs less than $70 million to facilitate,” the group noted.

ATRI contends that U.S. electric utilities are equipped to begin collecting a per-kWh tax for EVs in the coming years. “Using a phased approach, utilities would identify, measure and tax electricity that is used for transportation — starting first with electricity that is dispersed through public charging stations and residential smart chargers.”

ATRI also points out disincentives unrelated to an electric fuel tax that should be addressed through technology or possibly regulation, including:

  • Range limitations and range anxiety. EVs generally have a lower range than traditional vehicles, and drivers may have concerns that a BEV will not be able to cover a certain distance between charges.
  • Duration of charge. EV charge times are substantially longer than refueling a traditional vehicle.
  • Electric demand charges. Demand charges typically apply to commercial customers and are based on the highest level of electricity used during a billing period. These costs can be substantial and would impact businesses that use energy during peak demand.

U.S. lawmakers, meanwhile, continue to debate ways to shore up the HTF. While there is currently a lack of support for increasing taxes on fuel or electricity used for transportation, the bipartisan infrastructure bill currently being considered in Congress includes a provision for an electric vehicle working group report describing barriers and opportunities to scaling up electric vehicle adoption in the U.S. 

The report is to include recommendations relating to how governments can collect EV user fees to fund highway infrastructure.

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John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.