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Dian L. Chu

Dian L. Chu

Dian L. Chu, is a market analyst at EconMatters.EconMatters  is made up of a team of financial and market analysts who research, analyze, and write…

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Green Cars May Lead to Higher Taxes

Energy and environment conservation has been high on every nation’s agenda probably even before the oil crisis in the 1970s.  Green cars such as hybrids and electric cars have been gaining popularity as well as auto market share in the U.S. driven in part by high oil and fuel prices, as well as government policies, and subsidies in some cases, pushing for higher fuel efficiency.

Most people think “eco-driving” or even carpooling is a win-win-- saving gas money and the environment at the same time.  But it looks like what may be good for the environment, is actually bad news for the government. 

Gasoline Price Make Up

You see, for each gallon of gasoline or diesel we gas up in our cars, there’s a portion of tax that goes to the state government to fund the building and maintenance of roads and bridges.  So unfortunately, more fuel efficiency and less driving even by carpooling means less tax revenue for the government, and the green car is also to blame.

Related Article: A Clean Energy Revolution is Underway at the DOE

For example, in Vermont, revenue collection of the state’s transportation fund has been shy of their target for seven straight years.  According to AP, 25% of Vermont’s expected $232-million transportation fund in the current fiscal year is supposed to come from the gasoline tax of about 20 cents a gallon.  

In order to make up for the shortfall in the fuel tax revenue, instead of coming up with ways to cut costs, Vermont and Oregon reportedly are mapping out a possible new scheme of taxing drivers not based on how much fuel is burned but how far each vehicle travels as AP reports.

Although Europe has a longer history and higher adoption rate of fuel efficient cars, what’s taking place in the U.S. right now is actually the conclusion of a U.K. study published back in 2011: 

“The drive to promote greener, more efficient motoring will blow a £13bn hole in the public finances as revenue from fuel and road taxes dries up."

“Drivers may end up being taxed more, even as the industry adapts to meet environmental targets….[government will be] forced to look at ways of clawing back the money motorists think they will be saving."

Related Article: Google Ups the Ante for Renewable Investments

Now the U.S. is projected to have high growth in green car sales.  Market research firm Mintel says that U.S. sales of hybrid, plug-in hybrid, and electric cars should reach 440,000 units in 2012 -- a 73% improvement over 2011, reaching  850,000 in unit sales by 2017, or 5% of the U.S. auto market. 

Separately, a 2011 study by the J.D. Power and Associates projects major growth, as much as 10%, of vehicles with fuel-efficient technologies by 2016, which would represent a four-fold increase in the sales numbers for green cars compared to 2010.

If these are realistic forecasts, then don’t be surprised to see a Big Brother GPS inside every vehicle in the country as Vermont Transportation Secretary Brian Searles indicated,

“….. calculating how much of a VMT tax is owed would be done through the global positioning system devices that are expected to be standard equipment [capable of tracking location, time] in cars later this decade.”  

I personally can’t even begin to count the possible number of privacy concerns having a government GPS inside my car, not to mention the additional resource tracking and collecting this new mileage tax would require, and I thought the U.S. Federal and state government has had enough funding problems already?   

I guess the moral of the story is that it’s all about money, and whatever "savings" coming out from one end will eventually need something else (e.g. new taxes) to replenish, at least as far as “government budget” is concerned. Ultimately, taxpayers still end up footing all bills and more--in this case, you get hit with a new mileage tax before even seeing an ROI from your Prius.

By. Dian Chu


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Leave a comment
  • Man54duca on January 31 2013 said:
    While it is true state governments may have to impose higher taxes to replace lost fuel taxes consumers still benefit more than they loss. my previous car required 4 gallons of gas to travel 100 miles. My new a plugin uses 0.75 gallons to travel 100 miles. At current prices I am saving more than $12 per 100 miles. At my current rate of savings an addition 13% alternative road tax wold be represent a serious disincentive.

    There are a number of ways state governments could go about covering the lost tax revenue. I think a usage tax is fair. Do we need to actually account for road use. I am not sure that is necessary. Before the era of hybrids the fuel efficiency of vehicles varied dramatically. Yet we never bother to charge the owner of a 1990 Geo Metro (45 mpg) a higher tax than the owner of a 1990 Ford Bronco 4WD (12 mpg). In my opinion we should tax based on the EPA fuel economy standard. This would provide consumers with an incentive to purchase fuel efficient vehicles.
    By the way! Many states already some form of vehicle tracking system in place (e.q. E-Z PASS).
  • James Brown on August 24 2013 said:
    Green driving is good for environment. And will also reduce our car expenses. People try to maintain their vehicle properly so they can get good mileage and try to save money on fuel. This Article gives us important information on several issues.

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