Indiana recently became the latest state to suggest the idea of an “EV tax.”  As we’ve covered before, several states have implemented additional yearly fees for electric vehicles.  Even California floated the idea at one point.

At first glance, it seems almost reasonable – revenue from gas taxes is falling because cars across the board are using less (or no) gas; infrastructure spending is sorely needed but is only getting more costly thus squeezing budgets even more; more efficient cars, particularly electric cars, are getting by without paying their “fair share” because even though they use the same roads they don’t pay as much (or at all) to maintain them.

So why shouldn’t those “freeloading” EVs also be forced to pay a road use tax?  Well, there are several reasons…

First, EVs, and passenger cars in general, do disproportionately little damage to the road when compared to larger vehicles like semi trucks.  Second, if the concern is about “freeloaders” then we should talk about the damage being done to the world by fossil fuels, which is far greater than the road damage being done by EVs.  Third, because of how few EVs are on the road yet, these fees aren’t going to make any significant progress on fixing budget shortfalls.  Fourth, the proposed and enacted “EV fees” are almost always too high, far higher than the equivalent amount of taxation happening to gasoline vehicles.  All this adds up to an unfair burden for EVs, and represents an attempt at strangling a technology which is both nascent and represents a social good in terms of lowering pollution which positively affects all of society.

Point one: It turns out that passenger cars actually do almost no damage to the roads.  According to a GAO study, an 80,000lb 18-wheeler does 9,600 times more damage to roads than a 4,000lb passenger vehicle.  Many EVs are lighter than this – the BMW i3, for example, weighs as little as 2,799lbs.  So if the intent is to charge cars based on road damage, then nearly all of the tax should be paid by shipping concerns, rather than by passenger cars, anyway.

Point two: While it is true that EVs “freeload” on the roads – though, again, they are doing tens of thousands of times less damage than trucks anyway – it is also true that gasoline vehicles freeload on the environment in many ways.  Gasoline-powered vehicles produce negative externalities in the form of pollution, whereas EVs are comparatively much cleaner.  This pollution is costly to society in terms of health effects, lost productivity, climate change, and in other ways.  It’s so costly that two policy heads from the International Monetary Fund recently published a paper stating implicit subsidies for dirty energy amount to a global yearly waste of $5.3 trillion, which is 6.5% of global GDP.  Another recent paper estimates that every gallon of gasoline burned does an additional $3.80 worth of damage to the environment – a far cry from the 18.4¢ federal gas tax last raised in 1993.

Point three: If Indiana is looking to make up for a budget shortfall, taxing EVs isn’t going to get them very far.  According to this article in the Indianapolis Business Journal from August 2016, Indiana had seen a total of 173 new EVs registered last year, through August.  This suggests a year-end total of perhaps 300 cars.  If each of those cars paid Indiana’s proposed $150 fee, that’s $45,000 worth of state revenue.  At a rough cost of $1.25 million per mile, this is enough to resurface just under 200 feet worth of road – which is about half of a hundredth of a percent (.005%) of the 66,000 miles of road in Indiana.

Point four: Even though the $150 fee will result in a minuscule increase in revenue for Indiana, it’s still way too high when compared to the taxes gas-powered vehicles are currently paying.  Indiana’s state gas tax is 18 cents – though this proposal would raise that to 28 cents, so let’s use that number.  This means that the $150 fee would be enough to pay the gas taxes on 535 gallons of gasoline.  Using the BMW i3’s 124 MPGe rating, we can calculate that an i3 could travel 66,340 miles on the energy equivalent of 535 gallons of gas – 5.6x more than the 11,655 miles the average Indianan drives per year.

Or, looked at another way,  in order to drive that same i3 11,655 miles per year, you would need to consume 3,146kWh worth of energy, at a consumption rate of 27kWh/100mi.  Since average electricity prices in Indiana are 10.53¢/kWh, the average i3 driver can expect to spend $331 on electricity for their car annually (not counting cheaper off-peak electricity pricing which many EVs can take advantage of).  This means that a $150 fee represents a tax of 45.3% on the energy cost of fueling the vehicle.  Conversely, at a current average gas price of $2.35/gallon, Indiana’s 28 cent gas tax would represent only an 11.9% tax – which means the i3 is paying 3.8x as much tax as a gas vehicle, by this measurement.  No matter which way you look at it, this is a disproportionately high tax, seemingly designed to punish the EV.

Finally, EVs already pay a “fuel tax” in the form of taxes on electricity.  In Indiana, the state sales tax of 7% applies to electricity, and of course EVs pay this “at the pump” – when filling up at home. Incidentally, the current Indiana gas tax of 18 cents per gallon works out to a 7.6% tax at current gas prices of $2.35/gallon, so it looks like EVs already pay an equivalent “pump tax” to gas vehicles anyway!

And all of this just because politicians have been too cowardly to raise gas taxes in proportion to inflation or as response to more fuel-efficient vehicles (which, admittedly, Indiana is proposing here – and good on them for that), or to move to another scheme for road-use taxation which would actually be more fair (tax based on weight or mileage, for example).  The gas tax was a pretty elegant solution – less efficient vehicles are taxed more and it’s easy to collect, but the problem is that it hasn’t kept up with the cost of infrastructure.

So make it simple: instead of a gas tax, charge a weight tax at vehicle registration to account for road damage, and use pollution pricing to account for the damage vehicles are doing to the environment.  These would be assessed against EVs as well – though of course, since EVs are cleaner, they would end up paying less for the pollution they cause.  Then, if you think that government should be encouraging adoption of technologies which represent a social good, expand subsidies for clean vehicles, public transportation, etc.  And don’t try to strangle an industry which still represents .1% of new vehicle sales, as EVs do in Indiana.  Let them gain a foothold first.

In conclusion, it is fine to think that EVs should “pay their fair share,” but these measures are, in practice, misguided and unfair.  They represent an attempt to strangle a new technology, when what government should be doing, depending on your philosophical stance on the purpose of government, is either staying out of it and letting the market solve the problem for itself, or encouraging a technology which represents a social positive.  These measures stand as targeted attempts to actively discourage a social positive, and ignore the huge social negative represented by the externalities which gas-powered vehicles produce.


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