Taxing Times For Electric Vehicles: How Will Roads Be Funded Without Fuel Taxes?
Every time you fill up your car’s fuel tank the tax office rubs its collective hands with glee. Just how much glee depends on where you live and the prevailing price of fuel. In the US and Mexico, tax comprises well under 20% of the pump price. For motorists in Germany and the UK, the take is over 60%. In Australia, the tax take is around 45 to 50 cents per litre, including GST. With passenger vehicles alone using 18 billion litres of fuel each year in Australia, that adds up to around $9 billion in tax.
Enter electric vehicles and plug-in hybrid vehicles. They may still be curiosities, but as production volumes rise and prices fall they’ll quickly become main stream. One reason is the low running costs.
It takes around 0.188 kWh of electricity to drive the big and weighty Tesla Model S one kilometre, or in fuel economy parlance, 18.8 kWh/100 km. At an electricity cost of 25 cents/kWh, that will cost you $4.70 /100 km in fuel and the tax office will get 43 cents worth of GST. Charge up off peak, and these costs, and corresponding tax, will drop by more than half.
At a fuel economy of 10 litres/100 km and current petrol prices, your conventional ride will cost you around $14/100 km, and the government reaps a much more gratifying $5.00 or so in tax.
Now let’s be fair: we the people are the beneficiaries of all that tax. Amongst other things it helps to build and maintain the roads we all expect to use. And $9 billion is a hefty chunk of money.
So as EVs take off in popularity someone is going to notice the shortfall. Most likely some bright spark in the tax office will have already done so. Or it might even be petrol heads who take exception to subsidising the electron heads. But with EVs the leading contender for powering our personal transport in a carbon-constrained world, it’s only a matter of time before we will need to come up with creative ways to fill this revenue hole that isn’t dependent on the source of energy.
The options are many, but adding a massive chunk in tax to electricity charges wouldn’t be a popular one. Not unless car charging can be separated from other electricity use, and that seems impractical and hard to police.
A flat increase in car registration costs is also problematic as it doesn’t reflect distance travelled and the relative “consumption” of road space.
Various technologies are already available to track our every move, so a strong contender is to charge on a per km basis. This has the added attraction that it is then easy to add on a congestion charge or discounts for time of road use.
Whatever the ultimate solution, expect to see new ways of taxing road use as EVs increase in popularity. And don’t worry about privacy issues. Your movements are already being tracked and recorded by all sorts of organisations.
Addendum: As it happens, I’m not the only one thinking about this issue, though for a slightly different reason. Infrastructure Partners Australia has produced a report calling for road users to be charged on the basis of distance, location and time of day. Apparently better fuel economy of conventional vehicles is already putting a dent in fuel tax revenue.
Image: Bontenbal via Wikipedia