Electric Vehicles: A Solution to Climate Change but a Challenge for Roads

This August, California legislators proposed an ambitious, sweeping ban prohibiting the sale of new gasoline-powered cars by 2035 in an effort to reduce vehicle emissions and fight climate change.  California leads the nation in efforts to limit the rapid warming of our planet through both legislation and conscientious consumption. The mandated increase in demand for electric vehicles (EVs) must spark an increase in supply as well; indeed, both domestic and international auto manufacturers have set targets to scale electric vehicle production. While the goals of automakers and regulators seem aligned, whether or not this mandate is realistic remains unclear. The policy’s success will depend on factors such as the availability of charging infrastructure, addressing the current semiconductor shortage, and the overall affordability of electric vehicles. All of that said, policymakers need to examine the other externalities caused by transitioning away from gasoline.

Electric vehicles have gained popularity in the United States, thanks to their increased affordability, government tax incentives, and climate change focus. However, this shift poses challenges to the Highway Trust Fund (HTF) which finances infrastructure projects, including highways and mass transit, through taxes on gasoline sales. The HTF already runs up against insolvency each year while our infrastructure continues to crumble. The gas tax has failed to increase commensurately with rising inflation, remaining at 18.4 cents per gallon for the past 30 years.

This tax poses another problem: it is regressive. Those who make less money are spending a larger portion of their income on gas than those with larger paychecks. These low-income consumers, who the gas tax disproportionately negatively impacts, tend to live farther from work and school where housing is cheaper, forcing them to purchase relatively more gas. Additionally, they frequently drive older, less fuel-efficient cars.

More EVs on the road means fewer emissions and less gas sales. Unfortunately, that also means accelerating shortfall in revenue for the HTF. Fuel taxes currently account for 84% of federal and 29% of state highway funds. While EVs are not the only source of the HTF’s insolvency challenges, we need a new taxation regime for this new paradigm in travel. The shape and implementation remain unclear. While the House Transportation and Infrastructure Committee has already proposed several alternative HTF funding methods, none of their proposals solve both solvency and equity issues. In fact, equity does not appear to be a focus whatsoever. A sustainable solution must strike a balance between addressing equity concerns, achieving efficiency, and reaching revenue adequacy objectives. More concretely, effective solutions must limit the burden on the most vulnerable taxpayers while also providing sufficient revenue for the HTF. Striking this balance also exposes a fundamental policy challenge more broadly: segmentation. Despite the best of policy intentions, new taxes might impact populations in different and unforeseen ways, with disproportionate impacts on some groups. As such, prioritizing equity considerations must be coupled with proper alternative infrastructure funding proposals.

One such proposal is to move towards a Vehicle Miles Traveled (VMT) system. This would eliminate the gas tax entirely and charge drivers per mile traveled, essentially making every road into a toll. This is not a new innovation. It might discourage people from driving if they want to avoid paying such taxes, which would help curb carbon emissions. Having to pay this toll would force drivers to internalize the negative externalities of driving, both in terms of carbon emissions for gas cars and road wear for all vehicles. Unless the VMT fees are bumped up drastically, further disadvantaging those who cannot afford to live close to their employer, it will continue to fall short of funding the HTF.

Privacy concerns also abound in the VMT system. Smart phones and a GPS-based tracking system can act as a logical solution to track miles driven, but this could present an invasion of drivers’ privacy if data is collected on drivers’ whereabouts and mileage at all times. While traditional toll roads do use tracking technology, data is only collected on a small subset of all roads. A potential way to account for this is to purchase prepaid miles as indicated by a paper license mounted to a vehicle’s windshield; however, drivers could easily evade such fees if state or local enforcement agencies do not regularly check permits or if drivers do not keep them up to date. The federal government would need to develop a compliance monitoring system to prevent significant evasion, but the government has not yet devised a detailed plan for this. For new funding methods to help the HTF’s funding problems, drivers must actually contribute to it.

Another proposal that could quell privacy concerns is to add a tax to EV charging stations, similar to taxes at gas stations. This is not actually a new solution, and it mimics one that did not work previously. It is unlikely to be the winner. Collecting taxes at a charging station may not generate much funding for the HTF because the majority of EV owners charge their vehicles at home rather than with public chargers. Further, charging infrastructure is not widespread enough across the country to reach all potential EV drivers, nor can the electric grid support widespread charging at present. The federal Department of Transportation must resolve these barriers to revenue collection before the HTF can achieve solvency, not to mention generalized EV adoption.

The recently-passed federal infrastructure bill allocates $15 million each year from 2022 to 2026 in grants for “strategic innovation for revenue collection.” Despite the available federal funds, individual states must implement new HTF funding strategies, rather than adopting a broader federal method. The lack of a comprehensive plan across states as well as differing priorities could prevent efforts from arriving at an effective solution, though researchers and legislators have proposed several promising alternatives.

Scandinavian countries are leaders in green transportation policy, and their vehicle taxation schemes might just be the perfect solution for the United States to adopt as well. Norway currently has a mandatory weight tax for all gas- and diesel-powered cars, and this tax will be extended to EVs starting in 2023. The tax requires car owners to pay 45 cents per pound after the first 1,102 pounds, meaning a Tesla Model X, weighing 5,740 pounds, will cost owners an additional $2,455. Drivers only need to pay the tax once. This could serve as a promising solution to the HTF’s insolvency problems, specifically when combined with Norway’s other EV incentives including value-added and annual road tax exemptions and access to bus and taxi lanes. Such tax schemes could provide a standardized approach towards collecting funds for the HTF. In terms of equity, consumers can be thoughtful about the weight of the cars they choose to purchase to ensure the cost of the tax is as low as possible.

At present, we need more policy solutions that align innovation in the auto industry with the realistic need to maintain our roads without dismissing equity considerations. All in all, following Norway’s lead could be the best solution. Universal EV adoption may seem aspirational, but it could become a reality in the not-so-distant future. For this transition to succeed and to combat climate change, policy makers must adequately fund the roads upon which such vehicles will drive. Ensuring the future solvency of the HTF provides the most straightforward solution. Concern for the environment cannot be isolated from concerns for equity. Both should be top of mind when proposing alternative HTF funding.  Policymakers must address both the social and environmental concerns to create a just and sustainable solution.