Monday, June 10, 2013

The carrot and the stick(?) on Electric Vehicle Drivers

Electric vehicle users have been exempted from paying their use of road facilities. That's because they do not need to fuel their car with gas. The main source of transportation funding which is gas tax revenue is declining. With the growing market of electric vehicles, fuel efficiency of regular vehicles are improving so that the future of transportation funding is not likely bright with current scheme of road tax.

It seems that there are two distinct directions when it comes to a road tax on electric vehicles. As the carrot, there are tax incentives for the purchase of electric vehicles at a state level and a federal level[1]. Consumers who purchase a electric vehicle are eligible to apply for federal tax credits up to $7,500 depending on battery size.  Total 31 states offer various incentive programs for the electric vehicle drivers. As the stick, a new road tax scheme enables to impose tax on all vehicles including electric vehicles, plug-in hybrid electric vehicles, and all regular vehicles. The vehicle mileage fee emerged as one of the leading alternatives or supplements to fuel taxes in recent surface transportation financing policy debates[2].

Recently, several states propose a new road tax[3]. One of main issues is imposing tax on electric vehicle users. The state of Washington demands people driving electric vehicles to pay a $100 annual tax. Plug-in hybrids are excluded from the new bill which was passed last year. New Jersey   would impose all drivers 0.00839 cents per mile.  Average drivers who travels 12,000 miles per year would pay around $100 for driving any vehicles including electric vehicles. House Bill 2313 of Virginia charges larger annual registration fees and an additional $64 per year for environment friendly vehicles including electric vehicles, hybrids and alt-fuel vehicles. Oregon is considering a bill in which plug-in and highly fuel efficient vehicles are paying tax by mile driven[4]. The vehicle drivers need to pay a cent and a half per mile which would be $230  for 15,000 miles per year.

Some people questioned on this movement targeted on electric vehicle drivers[3]. They warned that the new tax on electric vehicles would prevent the change of vehicle from regular vehicles to electric vehicles. Further, higher tax on electric vehicles would be reverse discrimination. In New Jersey's bill, electric vehicle drivers would pay $100 for 12,000 miles, but gasoline vehicle drivers would pay $69.60 with a case that the average speed is 25 miles per gallon[4]

Does a road tax go to a right direction? Before judging it, it seems to be reasonable to find any researches to back-up or understand current policies around electric vehicles. First, regular drivers pay for road maintenance, construction, and other service fees including tolls, but not for full transportation cost[5]. Zhang and Lu(2012) attempted to calculate the marginal-cost vehicle mileage fee by incorporating the cost of externalities into a full transportation cost[2]. Four types of externalities were included such as pollutant gas emissions, GHG emissions, congestion, and external infrastructure cost.  The obtained marginal-cost vehicle mileage fee was from 7.7 to 9.1 cents/mi depending on vehicle size and type. Compared to 1.2 cents per mile for a current gas tax, it was quite high.  Secondly, there was a research calculating savings from the use of electric vehicles. Lidicker et al.(2010) presented that the savings by shifting from a conventional 23 mpg vehicle to a 300 Wh/mi electric vehicle range from $100 to 1,800 for 10,000 miles driven per year[6].  

These two research showed that current road tax was quite small theoretically, and proposed vehicle mileage fee seemed to be still far below than full transportation cost. However, for the case of New Jersey, the public acceptance of a new road tax on electric vehicles would be harsh. Nobody likes to increased service fee. Even it is more expensive than one for regular vehicles! Practical approaches should be mingled with theoretical one. What New Jersey missed is a promoting period. 

Customers of electric vehicles seems to be early adapters in a sense that electric vehicle is still quite a new technology and the price of it is more expensive than regular vehicles. One of characteristics of early adapters would be dealing with premium cost of a product. To promote a switch from a regular vehicle to a electric vehicle as a main trend, current incentives on the purchase of electric vehicles would be effective. Let's see how it works. The reduction of personal purchasing cost by monetary incentives would trigger the increase of demand. It would result in the increase in revenue of electric vehicle manufactures. More manufactures would be interested in launching more product lines to maximize profits. The more electric vehicle lines are linked with accommodating utility of customers so that it would positively affect on demand increase.  Eventually, monetary incentives on the purchasing electric vehicles help electric vehicles to be more popular than now.

Going back to New Jersey case, it gets more complicated for a road tax on electric vehicles to come up with compensating the loss of a current gas tax with a new distance based user charge. It make sense to share transportation cost with not only for regular vehicle drivers  but also electric vehicle drivers.  With considering a promoting period of electric vehicles for public, it might be better to impose a same or less  distance based user fee for electric vehicle compared to one for regular vehicles. However, eventually, the road tax needs to be increased.  Through gradual increase in a road tax, the deficit of transportation funds need to be recovered. The gradual increase would be mutually beneficial for reducing the deficit of transportation funds and suppressing vehicle mile travels.         

[1] Federal and State Tax Incentives on EV

[2] Zhang, L. and Lu Y. Marginal-Cost Vehicle Mileage Fee. In Transportation Research Record: Journal of the Transportation Research Board, No. 2297, Transportation Research Board of the National Academies, Washington, D.C., 2012, pp. 1-10.

[3] Damon Lavrinc. New Taxes Make Electric Vehicle Owners Pay Their Share

[4] Jon LeSage, New Jersey Considering Electric Vehicle Tax

[5] Black, Chapter 9: The Full Cost of Transportation.

[6] Lidicker, J.R., Lipman, T.E., Shaheen, S. A. Economic Assessment of Electric-Drive Vehicle Operation in California and Other U.S. Regions. In Transportation Research Record: Journal of the Transportation Research Board, No. 2191, Transportation Research Board of the National Academies, Washington, D.C., 2010, pp. 50-58.


  1. why don't electrical cars be excluded from the road tax in first place.? its already having many difficulties on its own that have not been solved yet:
    - some electrical cars can't go farther than 50 miles on road without looking for a source to charge the batteries , which takes long time.
    - other electrical cars that are developed have very big batteries and can go farther to around 300 miles with single charge. But its expensive and you will be chocked if you needed to change the cars batteries which might be between 12,000-15,000 $ which is way too expensive.
    it would be better to let the people adopt the technology of electrical cars first, and put the suitable taxes on them after its get popular.

    great article yunemi


  2. This is a great article Yunemi, it's such a catch-22. We want to promote electric vehicles however they should pay a road tax because they are using the roads. I think keeping the federal/state tax incentives is a good idea.


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