Global policymakers are imposing new taxes on electric vehicles as the shift away from internal combustion engines threatens to leave a $110 billion hole in government revenue by reducing revenue from fuel tariffs.
The United Kingdom, New Zealand, Israel and most states in the United States have introduced tax changes and levies on EVs and hybrid vehicles to raise funds and compensate for the reduction in gasoline and diesel excise taxes.
Measures range from registration fees to road usage fees based on distance driven and taxes on public charging points. EV owners and environmentalists argue that EVs will slow society's transition from gas-guzzling cars to lower-emission alternatives.
“It's more of a penalty,” said Jeff Shoffner, who drives an electric Chevrolet Volt in Tennessee. This year, annual membership fees have doubled to $200. “I don't mind paying extra, but I think it's too expensive.”
The new tax comes at a difficult time for the adoption of electric vehicles. While global sales are expected to reach record highs this year, falling profit margins and slowing growth are causing automakers to put the brakes on their electrification plans.
Last week, Tesla CEO Elon Musk shut down the group's entire Supercharger division and laid off hundreds of staff in response to the EV maker's declining profits.
“Many of these policies are politically unpopular. Raising taxes is difficult but necessary,” said Rachel Orlando, transportation director at the Council for an Energy Efficient Economy, a Washington, D.C.-based think tank.
He said fuel tax collections have been decreasing for some time due to improved fuel efficiency of internal combustion engine vehicles. The increasing uptake of EVs on the roads is putting further pressure on a key revenue source for governments.
According to the International Energy Agency, EVs are expected to replace 6 million barrels per day of global oil consumption by 2030. Demand in 2023 was 102 million barrels per day.
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According to IEA data, the transition to EVs last year replaced $10 billion in revenue from gasoline and diesel taxes worldwide, excluding a small increase from new electricity tax revenue. If countries meet their electrification goals, the net loss is projected to rise to $110 billion by 2035, depriving governments of vital funds that are often reserved for road maintenance and transportation improvements. ing.
Europe, where countries tend to impose higher taxes on gasoline and diesel than the United States and China, accounted for 60% of the global revenue decline last year. Countries will recover some of their electricity tax funding, but the revenue will be small compared to the losses from fuel taxes, the agency said.
A growing number of governments are setting deadlines for phasing out internal combustion engine vehicles, forcing policymakers to consider unpopular tax reforms.
New Zealand last month introduced its first mileage-based road use charge for EVs and plug-in hybrids, saying the policy was badly needed to increase road maintenance costs as fuel tax collections decline.
Small EV owners will be charged NZ$76 (approximately $46) per 1,000km, the same rate as a comparable diesel car. Plug-in hybrid owners already pay fuel tax, so they will have to pay NZ$38 per 1,000km, which is a lower charge.
“This move to road charges is about fairness and equity. It will ensure that all road users contribute to road maintenance, regardless of the type of vehicle they drive. New Zealand Transport Minister Simeon Brown said in justifying the policy change.
The accusations have been slammed by EV lobby groups and environmentalists, who say they will slow down the adoption of zero-emission vehicles and result in drivers of plug-in hybrid EVs paying higher prices than drivers of regular cars. I was warning you.
Israel's tax authorities have proposed imposing a similar travel fee on EVs, which is expected to go into effect in 2026 in a bid to combat the sharp increase in budget deficits and congestion caused by the war with Hamas.
But many governments, such as the UK and Ireland, facing similar declines in fuel tax revenue, have so far balked at introducing unpopular mileage-based road charges for EVs. Instead, they have begun phasing out or reducing tax breaks for EV drivers to shore up tax collection.
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David Metz, emeritus professor at University College London's Center for Transport Research, said road tolls were a very “hot topic”, with large protests linked to previous attempts to raise prices. , said the British government has not actually taken it up. Fuel consumption tax.
“Politicians and civil servants all feel it's too difficult at the moment,” he said.
But Metz said the new road user fee system would not only replace a “significant portion” of fuel tax revenue lost due to the rise of EVs, but also reduce congestion and take polluting vehicles off the roads. He added that it was necessary. He said congestion charges in Stockholm and London were collected using CCTV and automatic number plate recognition technology, offering a model that could potentially be expanded.
In the United States, at least 38 states impose annual registration fees on EV and hybrid vehicle owners, and some include incentives for purchasing or charging EVs beyond the $7,500 federal subsidy for eligible vehicles. Also includes states where it is offered.
Last month, New Jersey signed into law a law that pays EV drivers a $250 annual fee and requires new buyers to pay upfront fees for four years totaling $1,000. The Democratic-led state offers up to $4,000 in tax credits for EV purchases and separate rebates for home charging systems.
“It's depressing. We were happy to be at the forefront in terms of incentives and adoption rates. . . This particular thing about registration fees seems to go against that,” said a Tesla driver in New Jersey. , Patrick McDevitt said.
Corey Kantor, an electric vehicle analyst at BloombergNEF, said annual registration fees are incurred in the early stages of EV adoption and risk hindering EV growth.
“If you increase the initial cost of EVs, obviously that's a problem for growth,” Kanter said, noting that cost is one of the main “barriers to adoption.”
But imposing a registration fee on EVs won't solve the challenges faced by U.S. state and federal authorities due to lower gas taxes. The Congressional Budget Office predicted in February that the National Highway Trust Fund, the federal transportation fund funded by fuel taxes paid for road and mass transit projects, would be insolvent by 2028 without policy reforms.
