Think taxing electric vehicle use is a backward step? Here’s why it’s an important policy advance


Jago Dodson, RMIT University and Tiebei (Terry) Li, RMIT University

The South Australian and Victorian governments have announced, and New South Wales is considering, road user charges on electric vehicles. This policy has drawn scorn from environmental advocates and motor vehicle lobbyists who fear it will slow the uptake of less-polluting vehicles. But, from a longer-term transport policy perspective, a distance-based road user charge on electric vehicles is an important step forward.

Superficially, a charge on electric vehicle use seems misguided. Road sector emissions are the worst contributors to climate change. Electric vehicles powered by clean energy offer the promise of near-zero emissions.




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As electric vehicle and renewable energy costs decline we can expect a shift to full electrification of urban vehicles over the next 30 years. Surely accelerating this transition is an urgent climate task?

The downside lies not in the carbon benefits of these vehicles, but in their use as private passenger transport in congested urban areas and the costs this use imposes on cities. As renewable energy becomes cheaper, the marginal cost of every kilometre driven is likely to decline. As driving becomes cheaper, more of it is likely to occur.

More driving means more congestion. Inevitably, that increases demand for increasingly expensive road projects, such as Sydney’s WestConnex, or Melbourne’s Westgate Tunnel and North East Link. It certainly will run against the recognition in urban plans such as Plan Melbourne that we must shift to alternative transport modes.

If we don’t have a pricing regime that accounts for the cost of car use in cities, the transition to electric vehicles is likely to work against the wider goals of urban and transport policy.




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How would distance-based charging work?

Many urban transport policy advocates have called for distance-based road-user charging to be imposed on all vehicles in cities. This sounds great in theory, but in practice is difficult for technical and political reasons of privacy and surveillance. Such concerns will diminish over time as cars increasingly incorporate automated telematics that necessarily track their movement.

Distance-based road-user charging efficiently matches road use to its costs – of infrastructure, congestion, noise, pollution and deaths. It improves on fuel excise, which drivers can nearly completely evade by using a highly efficient vehicle. It also goes beyond tolling to fund major roads, which typically apply only to specific links.

Second, road-user charging can be varied in response to demand that exceeds road capacities. Higher rates can be applied at peak times to ensure free-flowing traffic and shift travel to other times and modes. Various taxation reviews, including the 2009 Henry Taxation Review and Productivity Commission reports, have promoted such policies.




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Exactly how big would the disincentive be?

Would imposing such charges on electric vehicles retard their uptake?

Based on our work with ABS Census journey-to-work data, in Melbourne the average daily round-trip commuting distance by car is about 25 kilometres. The proposed Victorian charge is 2.5 cents per kilometre. Thus, in Melbourne the average daily commuter’s road user charge is likely to be 63 cents – $3.13 for a typical five-day working week. Over a 48-week working year that totals A$150, hardly a large sum for most people.

By comparison, a commuter in a conventional vehicle with the average current fuel efficiency of 10.9 L/100km will use about 2.73 litres of fuel on which they pay 42.3 cents per litre in fuel excise. That’s about $1.15 a day, or $5.75 a week.

The average tax saving for electric vehicles compared to conventional vehicles will be about 2.1 cents per kilometre. Electric vehicle drivers will be taxed about 53 cents a day, or $2.64 a week, less for their car work travel. They’ll be about $126 a year better off.

Commuting trips make up about 25% of car use, so electric car users’ overall savings are likely to be even greater.

It is difficult to see how such savings on excise tax are a disincentive to electric vehicle uptake. Fears of a “great big new tax”, as the Australia Institute puts it, seem unfounded, as are concerns that road-user charges would “slam the brakes on sales”.

Let’s be clear, the big barrier is the upfront cost of electric vehicles, about $10,000 more than their conventional equivalents. Advocates for electric vehicles should focus on that difference, and the failures in Australian government policy, not state road-user charges.




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Why taxing actual road use matters

It needs to be recognised that, with lower marginal costs, electric vehicles are likely to be used more than conventional cars. That would increase pressure on urban road capacity. So while the new road-user charge of 2.5 cents per kilometre is flat across the time of day or the route driven, this will likely need to change.

Distance-based road-user charges have been politically controversial. Imposing a tiny charge on a minority vehicle type is an expedient way of introducing a needed reform. Fewer than 1.8% of vehicles in Australia are currently electric or hybrid. But as all cars become electric, distance-based road charges will become an increasingly powerful policy tool.

Thanks to advancing telematics, transport planners will eventually be able to impose variable road-user charging by time of day and route, similar to ride-hailing companies’ “surge” pricing. We could then apply novel approaches such as a cap-and-trade system. A city could allocate its motorists an annual kilometres quota, which is then traded to create a market for excess urban road use.

The private car could also be integrated into mobility-as-a-service models.

Road-user charges could be regressive for people with few alternatives to the car. But telematic tracking could allow for lower charges for less affluent households in dispersed outer suburbs with few other options.

Beyond fuel, private cars have high environmental costs in steel, plastic, aluminium, glass and rubber use. And about one-third of our increasingly valuable urban space is given over to cars in the form of roads and parking.




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To reduce this demand on resources and space, car use could be priced to shift travel to, and fund, more sustainable and city-friendly modes such as public transport, walking and cycling. We could even price the car out of cities completely. The most environmentally sustainable car, after all, is no car at all.The Conversation

Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT University and Tiebei (Terry) Li, Research Fellow, School of Global, Urban and Social Studies, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Wrong way, go back: a proposed new tax on electric vehicles is a bad idea


Jake Whitehead, The University of Queensland

In recent years, false claims have circulated that electric vehicles are “breaking our roads” because they don’t use fuel and so their drivers don’t pay fuel excise.

Heeding such concerns, both the Victorian and New South Wales governments are reportedly considering a new tax for electric vehicles. It follows a report by Infrastructure Partnerships Australia which recommended a per-kilometre tax for electric vehicles.




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But this shortsighted approach risks killing the golden goose of our transport system. Such a tax would limit the economic, health and environmental benefits promised by electric vehicles which, together, far exceed any loss in fuel excise.

Instead, Australia needs a mature public discussion about holistic road tax reform to find a fair and sensible way forward.

Electric vehicle owners do not incur petrol costs.
ganzoben/Shutterstock

The problem is structural

Fuel excise is built into petrol and diesel prices, charged at around 40 cents per litre. For more than 20 years – well before the introduction of electric vehicles – net fuel tax revenue has been declining, largely due to improvements in vehicle efficiency, meaning engines use less fuel.

But if we take into account fuel tax credits – subsidies for fuel used in machinery, heavy vehicles and light vehicles on private roads – gross fuel tax revenue has actually increased in recent years.

This suggests the tax suffers from a structural problem. Simply applying a new tax to electric vehicles won’t fix it.




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It’s also worth remembering that while electric vehicle owners don’t pay fuel excise, they generally pay more in purchase taxes such as GST, because their vehicles tend to be more expensive to buy.

The federal government should encourage uptake of electric vehicles.
AAP

Benefits of electric vehicles

Electric vehicles help reduce our dependency on foreign oil and save owners over 70% in fuel costs by swapping petrol for electricity. Electric vehicles also lead to cleaner air, resulting in significant savings in health costs. They create new local jobs in mining and local energy, and importantly, are key to meeting global climate change targets.




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Comparison of annual road accident fatalities vs premature deaths due to vehicle emissions in NSW.
Asthma Australia/Electric Vehicle Council.

An electric vehicle tax would increase costs for motorists, curb sales and may even encourage the purchase of cheap, fuel-efficient vehicles, driving fuel tax revenue down even further.

Congestion is the bigger problem

The proposed taxes will do nothing to tackle the biggest problem with Australia’s transport system: road congestion.

Sweden, where I lived for several years, offers a possible way forward. In 2006, the city of Stockholm introduced a congestion pricing scheme which charged vehicles for driving in and out of the city centre at peak times.




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The scheme meant normal weekday traffic was considerably lighter. Low-emission vehicles were also temporarily exempted from the charge to encourage sales.

Unfortunately, despite the proven benefits, Australia is unlikely to introduce such a scheme due to a lack of public and political support.

Towards a sustainable road tax

The transport sector faces massive disruption in the near future, from electrified vehicles, automated vehicles, and the shift to shared vehicles.

Focusing solely on electric vehicles misses the broader point: we need to proactively prepare for the transition to a new transport system. This means ditching our unfair, outdated and unsustainable road tax model while reducing congestion.




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Instead of simply penalising electric vehicle owners, I suggest an approach where electric vehicle owners could voluntarily opt-in to a new road tax model. Here’s how it would work:

  • the tax would include a low per-kilometre fee for all travel, and an additional fee for inner-city travel during peak weekday periods

  • in exchange for opting in, owners would be exempted from the old road tax system, that is: vehicle registration, stamp duty, import tax, luxury car tax, fringe benefits tax, fuel excise, and road tolls.

  • to ensure a true financial incentive to opt-in to the new road tax model, a significant discount would initially apply. This discount would gradually be phased out as electric vehicle uptake increases, as has occurred with similar overseas schemes

  • the new road tax model could easily be extended in the future to apply to automated vehicles, and to more accurately reflect the burden transport poses in terms of congestion and pollution.




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This is just one example of a balanced approach that would encourage both local adoption of electric vehicles, and public support for fairer road taxes.

Such holistic reform would enable a future transport system with less road congestion, quicker travel times, cleaner air, lower costs and a sustainable road revenue stream.

Let’s be smart and not miss this golden opportunity.The Conversation

Jake Whitehead, Research Fellow, The University of Queensland

This article is republished from The Conversation under a Creative Commons license. Read the original article.