Rise of Electric Vehicles Presents Questions about Transportation Funding

June 14, 2021

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by Dania Maxwell (Bloomberg News/Transport Topics) While electric vehicles and alternative fuels contribute to reducing greenhouse gas emissions, their continued adoption forces states to rethink transportation funding sources that currently come from taxes on diesel and gasoline.

States already charging fees on alternative fuels and vehicles are concerned the amounts do not bolster their coffers since it hardly replaces what’s lost from fuel tax revenue. So they are grappling with how to close that gap — and surpass it — amid new federal energy initiatives.

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For instance, Texas consumed 5.41 billion gallons of special fuels (diesel and alternative) last year, according to the Federal Highway Administration, but did not charge fees on electric vehicles.

The state reported collecting $913 million in diesel fuel tax revenue for fiscal 2020.

Kevin Lyons, spokesman for the Texas Comptroller of Public Accounts, said the Texas Legislature is working on funding. Senate Bill 1728, which has passed the Senate and moved to the House of Representatives, would impose a fee on alternative-fueled vehicles at the time of their registration or registration renewal.

California, the next biggest guzzler at 3.16 billion gallons last year, has measures to raise money from alternative vehicles. On July 1, 2020, an annual road improvement fee of $100 was collected at the time of renewed registration for each zero-emission vehicle for model year 2020 or newer. This fee will be adjusted for inflation each year.

Owners of electric vehicles also pay an annual transportation improvement fee (as do those of internal combustion engine vehicles) based on the market value of the vehicle. It is a tiered fee determined by the California Department of Motor Vehicles and adjusted for inflation each year. This year the fee is between $27 and $192.

California Department of Transportation spokesman Christopher Clark said diesel excise tax revenue was $1.25 billion for the fiscal year ended June 30, 2020.

Keith Duncan, chief of the office of capital and finance within Caltrans’ Division of Budgets, said the fees geared toward alternative-fuel vehicles offer some financial recovery, but not to the fullest extent that would be lost from fuel tax revenue.

“We can see an average vehicle paying anywhere from $300 to $400 a year when it comes to excise taxes as compared to a zero-emissions vehicle paying a $100 fee as part of registration,” Duncan told Transport Topics. “Not being able to backfill dollar-for-dollar is definitely a concern moving forward.”

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Kara Kockelman, a transportation engineering professor at the University of Texas at Austin, said departments of transportation need some sort of distance-based pricing on top of heavier fuel taxes. However, she said road-usage charges are more expensive to administer than fuel taxes.

“The nice thing is there’s only, like, 200 refineries across the U.S., and so we charge there,” Kockelman told TT. “We should really, dramatically increase the gas tax. We pay less for hazardous material than we do for bottled water.” READ MORE

Collins calls EV users 'free riders' ahead of plan rollout (E&E News)

Bipartisan $973B infrastructure proposal alarms EV advocates with annual surcharge on vehicles (Utility Dive)

Drivers used to pay for roads. Washington is killing that idea. (Politico)

Clean Energy Faces the Same Problem as Fossil Fuels: Community Protests -- Wind and solar projects require vast bodies of land and water, sparking complaints from local farmers and fishermen (Wall Street Journal)

Will Biden's climate goals fail without an energy standard? (E&E News)

Excerpt from Utility Dive: A bipartisan group of 21 senators has recommended an annual surcharge on electric vehicles (EV), among other measures, to help pay for $579 billion in new infrastructure spending. The proposal, which has alarmed EV advocates, was first reported by Politico.

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The bipartisan infrastructure plan includes $15 billion for electric vehicle infrastructure, but advocates say placing a surcharge on consumer EVs to pay for it will ultimately hold back the transition to electric transportation.

"Let's be clear — EV taxes are not about boosting revenue or creating fairness, and they should be rejected as a pay-for in any infrastructure bill," Joe Britton, executive director of the Zero Emission Transportation Association, said in a statement. "These consumer penalties are being pushed by oil refiners to deter EV adoption and to further lock us into a fossil fuel-based transportation system."

"Generally speaking, I think it's a mistake to apply surcharges to EVs for anything, be it grid improvements or charging infrastructure or road maintenance," said Chris Nelder, who hosts The Energy Transition Show podcast and previously managed RMI's carbon-free mobility practice.

Adding "excess and unfair cost burdens is exactly what the oil-auto complex wants in order to preserve the status quo," Nelder said.

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It is not clear if Biden would accept a surcharge on electric vehicles, as the president has pledged not to raise taxes on individuals making less than $400,000 annually. On Friday, the White House said it would not support indexing the gas tax to inflation for that reason, though it was included as a "placeholder" in the bipartisan proposal. A spokesperson for the U.S. Department of Energy said the agency could not address the potential for an EV surcharge.

The surcharge is number nine on a list of 11 proposed funding mechanisms for the new spending. Other funding mechanisms identified in the proposal include repurposing COVID-19 relief funds, direct pay municipal bonds, mechanisms to leverage private sector funding and private activity bonds.

Sen. Bernie Sanders, I-Vt., said Sunday on Meet the Press that he would not support a fee on electric vehicles to pay for infrastructure spending. READ MORE

Excerpt from Politico: “We’re seeing all kinds of other sorts of pay-fors to continue to grow the size of the program without having the actual users having to pay for it,” said Robert Poole, director of transportation policy at the Reason Foundation. “That sets a bad example.”

The trend alarms traditional road advocates, as well as businesses that rely on highways to keep commerce flowing. They consider the gasoline tax a user fee and say keeping alive the "user pays" principle is crucial to ensuring these large, typically multi-year investments aren't subject to the whims of Congress and its appropriations process, which politics can sometimes grind to a halt. It also keeps money dedicated to infrastructure, relatively insulated from being diverted for other priorities.

The House’s surface transportation bill, which is expected to pass the lower chamber on Thursday, would shore up the Highway Trust Fund with a one-time transfer of $148 billion from the U.S. Treasury. That would nearly double the $140 billion in deficit-financed general revenue that Congress has shoveled into the fund since 2008.

Similarly, the idea of charging motorists or other users for the roads they drive on is nowhere to be found in the $1 trillion bipartisan infrastructure compromise that lawmakers and the White House endorsed last week — or in the multitrillion-dollar proposals that Democrats might try to pass on party-line votes. Instead, the White House and lawmakers have proposed various alternative funding schemes, such as revenue from auction of wireless spectrum, that would probably reap only a fraction of the required cash with a one-time infusion.

“The user fee works because it’s sustainable,” said Ed Mortimer, vice president of transportation and infrastructure at the U.S. Chamber of Commerce.

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Hiking the gasoline tax — long calcified at 18.4 cents a gallon — wasn’t always such a political third rail. As recently as the 1992 presidential campaign, populist Texas billionaire Ross Perot included a five-year, 50-cent hike in the gas tax in his pledge to take on the federal deficit.

The following year, then-President Bill Clinton and the then-Democratic Congress hiked the tax by 4.3 cents a gallon in their deficit-reduction plan, helping fuel a revolt by voters that swept Republicans into command of the Capitol in the 1994 midterms.

Every subsequent president, including Barack Obama and Donald Trump, rejected the idea of increasing the tax again.

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The tax also isn’t indexed to inflation, so 28 years of rising costs have eaten away at its purchasing power. Had Congress indexed it in 1993, the gas tax would now be more than 30 cents a gallon, according to Congressional Budget Office projections.

“We’d be in such a better place right now,” said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials.

Another cause of the Highway Trust Fund’s erosion could be termed the Prius/Tesla Factor: Increasingly fuel-efficient cars and trucks use a lot less gasoline than vehicles did in the early 1990s, and electric cars don’t use any at all.

Add in the tripling of highway construction costs in the past 28 years, and AASHTO estimates that the purchasing power of the gas tax has fallen 43 percent since 1993. By 2030, the Highway Trust Fund is projected to have a shortfall of $189 billion.

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The bipartisan infrastructure proposal between 21 senators and the White House briefly raised the prospect of that opposition softening, as a handful of senators negotiating that bipartisan compromise included indexing the gas tax to inflation as a possible way of paying for it. But the White House immediately dismissed it.

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One idea backed by many Republicans: imposing an annual fee on electric vehicles that would be roughly equivalent to how much drivers with gasoline-powered vehicles would pay in fuel taxes.

Democrats scoff, noting that electric cars and trucks account for no more than 2 percent of vehicles on the road. In addition, such a fee would only raise an estimated $1.1 billion over five years, the Congressional Budget Office has estimated.

As electric vehicle adoption becomes more widespread, that amount such a fee raises would grow, but still not enough to make a dent in the massive infrastructure price tags anytime soon. Beyond that, though, Democrats are more interested in offering incentives for electric vehicles use than taxing them.

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One proposal, with fans all over Congress, would charge all motorists a fee based on the number of miles they drive, not how much fuel they burn.

Such a fee, known as vehicle-miles traveled or VMT, would charge gas-guzzlers and Teslas equally for the wear and tear they put on the roads. But the idea raises a host of politically fraught privacy and logistical concerns, making it far from ready for widespread implementation. READ MORE