The rest of the world is handing out subsidies and incentives to speed up adoption of electric cars. But in nearly half of U.S. states, driving a battery-powered car requires paying additional fees.
To date, 24 states have imposed special fees on electric vehicles, according to a national association of state legislatures. The money usually comes in the form of higher registration costs that can range up to $200 per year. More states are poised to follow.
It’s a sharp reversal. When the new wave of plug-in cars hit the market in 2010, the federal government and a clutch of states adopted financial incentives to juice sales, seeing the vehicles as a way to fight global warming. Now even some states with incentives—most notably California, home to roughly half of all electric cars in the country—are turning to fees as way to ensure that electric drivers pay their fair share to maintain roads and bridges. States typically support that infrastructure through gasoline taxes.
“My feeling is that people using the system should pay for the system,” said Iowa Rep. John Forbes, a Democrat who backed recent fee legislation even though he and his wife drive a Chevrolet Bolt, one of about 1,000 electric cars in his state.
To EV advocates, fees to offset lost gas taxes look like a solution to a problem that does not yet exist. Some of the states that have imposed fees, such as Idaho and North Dakota, have fewer than 1,000 battery-powered cars on the road. The amount of tax revenue lost as a result remains minimal to EV supporters, who see the fees—at least in some states—as part of a broader political push-back against alternative energy technologies.
“I suspect that behind a lot of these state efforts, there is a bit of an oil-industry push to slow the increase of EVs in the market,” said Simon Mui, a senior scientist and EV advocate with the Natural Resources Defense Council. He pointed to support for the fees from the American Legislative Exchange Council, or ALEC, a group that drafts model legislation and has often backed fossil-fuel interests. (An ALEC spokesman did not respond to requests for comment.)
Frank Macchiarola of the American Petroleum Institute lobbying group said the federal tax code “unfairly favors” EV owners. “Like other consumers, electric vehicle drivers, who also cause wear-and-tear on our roads and bridges, should pay their fair share to help support American infrastructure projects,” he said. API hasn’t lobbied any states to adopt the fees.
Elsewhere there are generous incentives to car buyers willing to go electric, with sales rising rapidly as a result. Norway, for example, exempted electric car sales from taxes and offered drivers such perks as free parking in many cities; electric cars accounted for more than half of sales in the country in March. China’s incentives and mandates have been powerful enough to boost sales to more than 1 million electric cars in 2018 alone.
Although U.S. sales are rising, EVs still represent a small fraction of the vehicles on the roads. By the end of last year, 565,032 battery-powered cars were registered nationwide, according to a tracking website sponsored by an auto-industry trade group. California, the headquarters and biggest market for electric automaker Tesla Inc., had 273,656. No other state has crossed the 100,000 mark. The federal government offers a $7,500 tax credit to EV buyers, but that incentive phases out once an individual automaker sells 200,000 EVs. Both Tesla and General Motors Co., maker of the Bolt, have already passed that milestone.
If EV sales grow as expected in the U.S., it could take a significant bite out of gasoline tax revenue. So could fuel-mileage improvements in gasoline-powered cars. Together, those two forces could cut annual gasoline tax revenues 61% by 2040, compared to what receipts would otherwise be, according to a recent study by BloombergNEF.
But the problem won’t set in until the late 2020s, said Nick Albanese, a BloombergNEF analyst specializing in advanced transportation. For the immediate future, he said, increasingly efficient gasoline cars will pose a bigger threat to tax receipts than EVs.
“We’re not really starting to see significant impacts, even in states like California where there’s been more EV adoption,” Albanese said. “Because of how slowly passenger vehicle fleets turn over, this won’t be a problem for a substantial amount of time.”
To EV fee supporters, that simply means state governments should start preparing now. In Iowa, for instance, the legislature asked the state’s Department of Transportation to project how much gas tax revenue could be lost as electric car sales grow. The resulting study estimated that fully electric vehicles and plug-in hybrids would likely cost the state’s Road Use Tax Fund just $317,000 in lost receipts in 2018. But by 2030 the losses could reach as high as $45 million. Gas taxes are expected to pump $656 million into the fund during the current fiscal year.
“We want to make sure we’re ahead of the curve, so that five or 10 years out, we’re not seeing a shortfall,” said Forbes, who serves on the transportation committee of Iowa’s House of Representatives.
Iowa’s legislature passed a bill this spring that would phase in a $130 annual fee for electric cars and a $65 fee for plug-in hybrids. If signed by Governor Kim Reynolds, it would bring in an estimated $185,000 next year. Iowa last raised its gasoline tax in 2015.
Forbes and his wife bought their Bolt in 2017, and he likes the car’s snappy acceleration. He also drives a Chevy Suburban SUV, since the electric sedan can’t easily accommodate their two Great Danes. “I got some pushback from a few people on this bill, saying, ‘Hey, I’m doing the right thing for the environment,”’ Forbes said of the fee on EVs. “In the end, if we don’t have good infrastructure to drive our vehicles on, our economy is going to suffer.”