Consumer Group Accuses States of ‘Punishing’ Electric Vehicle Drivers

Chronic and projected shortfalls in many state departments of transportation have policymakers eying electric vehicles which pay no or greatly reduced gas taxes, the largest source of state highway funding, to keep roads in good repair. As of last October, 20 states were charging electric vehicles a special registration fee (EV fee), according to the National Conference of State Legislatures.

On July 1, Ohio joined the growing list with a $200 fee for all plug-in electric vehicles and $75 for non-plug-in hybrids, while Illinois increased their battery-only EV fee from $17.50 to $100.

A study released this month by Consumer Reports analyzed existing or proposed EV fees in 26 states and “found that, by 2025, 18 states will be taxing owners of electric cars, trucks and SUVs more than the average owner of a new gas-powered car will be paying in gas taxes. An additional 8 states are actively considering proposals to add punitive EV fees as well.”

What constitutes punitive?

“Any EV fee set at a level that is higher than the gas tax paid by the average new conventional gasoline-powered vehicle would disadvantage EV owners, and thus cannot be justified on the basis of fairness,” write Shannon Baker-Branstetter, manager of cars and energy policy at Consumer Reports, and Chris Harto, a senior policy analyst with the independent, nonprofit member organization.

The maximum justifiable fee (MJF) = Average Vehicle Miles Traveled/Fuel Economy Standard x State Gas Tax.

For example, the $200 annual EV registration fees in Arkansas and Wyoming “force EV owners to pay the equivalent of the gas tax paid by a vehicle that gets 13 miles per gallon.”

Should EVs be subject to a special fee to compensate for lost gas tax revenue?

“It is only fair that electric vehicle drivers should contribute to road construction and maintenance,” acknowledge Baker-Branstetter and Harto, but they question whether they should be subject to a special fee.

They observe that “state gas taxes accounted for less than 29 percent of state revenues that went to highway funding (see Appendix A [pgs. 12-13 of 16 in the report [pdf] for a specific breakdown for each individual state)” and EV owners pay through the other funding streams, though they omit the fact that EVs may be exempted from so of those fees, such as the third-largest revenue stream, tolls. [See the states that offer exemptions or discounts to EVs for high-occupancy-toll (HOT) lane access.]

Furthermore, the report indicates that “[p]roposed electric vehicle fees will not make a dent in declining revenues, generating only an average of 0.04 percent of current state highway funding, and only increasing to 0.3 percent by 2025.”

Why no special attention to California?

Considering that California accounted for “nearly half of the 105,472 pure EVs sold nationwide” from January through July of this year, as reported by Russ Mitchell of the Los Angeles Times on Sept. 11, and that the Golden State has a goal of getting 5 million zero-emission vehicles (ZEVs) on the road by 2030, it was surprising that the report didn’t pay the state special attention.

Streetsblog’s Melanie Curry reported in July (posted here) on a Mineta Transportation Institute study on how increased adoption of zero-emission vehicles (ZEVs) will impact state transportation revenue. That study looked at two new motor vehicle registrations fees included in Senate Bill 1: the Road Repair and Accountability Act of 2017, that hiked gas taxes by 12 cents per gallon and diesel taxes by 20 cents per gallon on Nov. 1, 2017, and an additional 5.6 cents per gallon on gas on July 1:

  • The Road Improvement Fee, a $100 “zero-emission vehicle” (ZEV) fee that, despite the name, applies to all alternative-fueled vehicles, including plug-in electric hybrid vehicles, e.g., Prius Prime, that also pay gas taxes, to ensure that these vehicles contribute toward road improvements. The fee takes effect on July 1, 2020, and applies to “zero-emission motor vehicle model year 2020 and later subject to registration under this code” per the legislation, i.e., current EV owners will be exempt.
  •  The Transportation Improvement Fee, a progressive motor vehicle registration fee based on vehicle value with an inflation adjustment, applicable to all light-duty vehicles, effective Jan. 1, 2018.

“The projections show that the user fees levied on ZEVs by provisions of SB1 can replace and potentially even exceed the revenue to the state that will be lost because of declining gasoline sales tax revenue,” states the report’s abstract. “[I]t was a very good idea for the legislature to make sure S.B. 1 included a way for electric vehicles to contribute,” concludes Curry.

Many of the other states that have added new EV fees or increased existing ones, such as the aforementioned Ohio and Illinois, respectively, did so in the same legislation that increased fuel taxes, as California did with their legislation in 2017.

Singling out California makes sense for another reason – ten states, the most recent being Colorado last month, have adopted what is referred to the California Zero Emission Standard that requires automakers to sell a minimum percentage of electric vehicles or purchase ZEV credits from other manufacturers.

Does the EV fee act as a disincentive for EV sales?

The researcher’s one reference to California was a finding from a comprehensive study that the Institute of Transportation Studies (ITS) at the University of California at Davis submitted to the state legislature last December on the state’s aforementioned Road Improvement Fee program (aka ZEV fee).

Per Senate Bill 1, ITS was “requested to prepare and submit to the Governor and the Legislature a report that makes recommendations on potential methodologies to raise revenue from zero-emission and low-emission vehicle owners to achieve the state’s transportation electrification, clean air, and climate targets established under law while also ensuring those vehicle owners pay their fair share of any costs borne by motorists to fund improvements to the transportation system.”

“We find that the registration fee is not a sustainable mechanism to provide adequate funding as California transitions towards ZEVs,” writes researcher Alan Jenn in the report’s abstract.

Additionally, the fee detracts from the market adoption of ZEV technologies by as much as a 20% decrease in new ZEV sales. [See “Impacts of fees on adoption of ZEVs” beginning on the bottom of pg. 13 of the report for the methodology used to make that determination].

Alternatives to punitive EV fees

The report’s preferred alternative is a simple no-fee approach. “States that want to encourage EV adoption in order to help meet emissions reduction goals and spur innovation can consider avoiding EV fees altogether at minimal cost over the near term.” However, it doesn’t rule out fees either.

There is no doubt that states need to find ways to raise more revenue to pay for transportation projects and maintenance. As they look to do so, it makes sense to consider EVs and make sure that as they grow in market share, EV drivers contribute to funding the infrastructure that they use.

If lawmakers decide that EV fees are the right policy for their state, they could phase in the fees slowly over several years or tie them to certain targets related to EV market share to help minimize the potential for the fees to suppress the rate of EV adoption. They can also look to other road-funding approaches that are more uniformly applied to all vehicles.

What about a mileage fee?

While not explicitly endorsing a road usage charge (RUC), like the Oregon program that has been in effect for over four years with just over 600 participants as of last month, the report recognizes the flaws of an annual flat fee, and highlights the importance of tying funding mechanisms to  “road usage.”

Even when EV fees are below the maximum justifiable fee, they are far from an ideal solution. For one, they apply uniformly to all vehicles regardless of the number of miles traveled, so an EV used for a short urban commute and driven only a few thousand miles a year pays the same as an EV used by a rideshare company and driven thousands of miles a month.  The nature of flat fees is that they are inherently unfair to low-use consumers.

However, in order for funding mechanisms to be tied to actual road costs, they should take into account actual road usage [italics added], consider direct impact in terms of road damage and congestion, and not punish cleaner vehicles that make up a small portion of the market. The current and proposed EV fees fall well short on most or all of these accounts.

Jenn, the UC Davis researcher whose work Baker-Branstetter and Harto referenced, made his recommendation to the governor and California legislature very clear in the report’s abstract as to how best to ensure zero-emission vehicles pay for infrastructure while also achieving clean air and climate targets.

Lastly, we examine alternative funding mechanisms include [sic] a fuel tax for hydrogen and electricity, as well as a road user charge (RUC). We find that a ZEV exclusive RUC is the most promising alternative to the ZEV registration fee.

While Jenn doesn’t call EV fees “punitive,” he makes a more serious charge by concluding that they are not “sustainable.” The major contribution of his research is that he recommends a ZEV-only approach to the road usage charge.

“Electric and hydrogen vehicles should be the only ones subject to the charge, Jenn said, since they come with advanced diagnostic software already built in, meaning a mileage-tracker can more easily log miles and send that information to whoever charges the tax,” reported David Iaconangelo for E&E News (subscription). Participants can also select non-GPS technology as well as they do in the Oregon program.

Utah will soon launch the nation’s second road usage charge program that adheres in principle to Jenn’s recommendation. See the section, “Utah to join Oregon on January 1, 2020,” in last month’s post on the Washington Road Usage Charge program.