High Registration Fees Hamper Adoption of Electric Vehicles

    A Consumer Reports study finds that a proposal in Texas won’t do much to increase highway funding in the state

    A Tesla electric car is plugged into a recharging terminal Photo: Robert Nickelsberg/Getty Images

    Texas lawmakers are considering changes that would assign an extra registration fee for electric cars and hybrid vehicles to help offset the amount they say the owners are not paying in fuel taxes every year. An analysis conducted by Consumer Reports finds that the proposed fee—which would be at least $200 per year for EV drivers—would be nearly three times as much as what the average new gasoline vehicle buyer would pay in gas taxes but would do little to increase the state’s highway funding.

    More broadly, the CR study finds that flat annual fees, while seemingly straightforward, don’t take into account how much someone drives and can be burdensome for low-income drivers as the full fee must be paid all at once. Such fees, if set at levels much higher than what a typical driver would pay in gas taxes, could also discourage someone from buying an EV. Consumer Reports believes that greater EV adoption is a key step in the journey toward lower carbon dioxide emissions.

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    Texas isn’t the only state considering adoption of such measures—or already using them—to increase road improvement revenue. Amid a changing automotive landscape, taxes on gasoline and diesel fuel remain a major source of federal and state governments’ highway funding. And although many states have raised their fuel taxes over the past few years, the federal government hasn’t touched its rate—18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel—since 1993. Texas hasn’t raised its fuel tax since 1991. State governments use a mix of different funding to build and improve bridges and highways, but federal funding constitutes nearly 30 percent of the overall revenue.

    Over the years, improving fuel economy and rising inflation have taken their toll on the purchasing power of fuel taxes. According to the federal Energy Information Administration, average fuel economy in the U.S. increased by nearly 5 mpg—to 25.3 mpg—between 1993 and 2020, and according to the U.S. Bureau of Labor Statistics’ Consumer Price Index inflation calculator, the dollar is worth half as much as it was when the fuel tax was last raised.

    “The gas tax was already failing before EVs came onto the scene, and it’s only going to get worse as all cars become more efficient and more people discover the benefits of going electric,” says Chris Harto, CR’s senior policy analyst for transportation and energy. “We need to get more creative on how to fund highway projects, but singling out EV owners with punitive taxes to cover shortfalls like Texas wants to do isn’t going to work.”

    CR believes that electric and hybrid-electric vehicles will be key players in lowering carbon dioxide emissions. Although batteries have come down in price in recent years, and although there is an ever-expanding selection of EVs and hybrids on the market, their higher cost over gasoline cars represents an insurmountable hurdle to many EV buyers.

    “As a society, we should be making hybrids, and to a greater extent EVs, more attractive to consumers,” says Harto. “They may not be a magic solution to all of our problems, but they are an important step toward lowering carbon dioxide emissions, combating climate change, and improving air quality.”

    According to the latest infrastructure “report card” issued every four years by the American Society of Civil Engineers (ASCE), the most significant cause behind America’s crumbling roads and bridges is a lack of committed revenue at the state and federal levels. ASCE gave the nation a “D” on roads and a “C” on bridges in its 2021 report, saying that 40 percent of the road system is in poor or mediocre condition, costing motorists $1,000 per year each in wasted time and fuel. The Infrastructure Investment and Jobs Act passed by Congress late last year includes funding for highway projects—among other things—but Susan Howard, director of policy and government relations for the American Association of State Highway Transportation Officials, says that the ever-dwindling gas tax is unlikely to get much help from federal lawmakers.

    State governments—which bolster their own highway funding with federal dollars—now face the dilemma of trying to reduce local emissions by incentivizing the adoption of cleaner low- and zero-emission vehicles while still maintaining a consistent funding source to maintain and improve infrastructure that benefits everyone, no matter what they drive. Several states, including Arizona, Vermont, and Wyoming, have added extra registration fees for EVs, but Howard says that most states are looking into more comprehensive ways of raising highway revenue.

    “States all have different approaches to raising, and more important, sustaining revenue for highway projects,” she says. “A lot of states have pilot programs to try new ways of collecting money, but only Oregon and Utah are currently collecting revenue from them.”

    Utah, for example, has a voluntary program in which motorists can sidestep the flat registration fee and pay by mileage. Participants get a mileage tracker that plugs into their car’s diagnostic port and transmits mileage information back to a company that manages the accounts for the state. The fee is 1.52 cents per mile, so sparse drivers pay less than heavy road users. Colorado, on the other hand, has worked transportation funding into state law by placing new fees on retail deliveries and ride hailing services, such as Uber and Lyft.

    “This way, they can capture revenue from users who are putting more strain on the system,” says Howard, pointing out that the discussions surrounding how to fund road improvements in the future go well beyond EVs and legacy fuel taxes.

    “The gas tax has outlived its usefulness,” she says. “Driving patterns are changing, more people are working from home, the fleet is changing to include more EVs and hybrids. The EV component is not the whole picture.”

    In the meantime, initiatives by Texas and other states to use registration fees to increase road tax participation by EV owners to fulfill an unmet need face pushback from those who believe in removing hurdles to more widespread EV adoption for air quality purposes, and from people who want to see a more equitable tax scheme.

    “States and the federal government should develop highway funding mechanisms that are fair for all road users, and that are based on the burden someone places on infrastructure rather than the type of vehicle they drive,” says CR’s Harto. “Stopgap measures like the one Texas is proposing are temporary solutions to a longer-term problem. A better solution will be more permanent, and it needs to keep pace with inflation and generate consistent revenue regardless of how efficient vehicles become in the future. When you look at the current federal gas tax and some of the measures still on the books in states around the country, that’s something that has been neglected for a long time.”