The County Road Association of Michigan retained Anderson Economic Group to study the road funding ramifications posed by the increasing adoption of electric vehicles in the state.
The work took place over a period of nearly one full year and was directed by AEG’s Tyler Theile and Cristina Benton. They conducted a careful analysis of the entire fleet of vehicles on Michigan roads, the tax structure for both EVs and ICE vehicles, and the likely path of EV adoption over time.
A few of AEG’s key findings:
- Michigan (and many other states) have followed a long-standing principle of taxing motorists in a manner proportionate with their road usage. Gas taxes have, historically, done this very efficiently and fairly. The advent of electric vehicles means we must rethink our tax structure.
- Today, drivers of battery electric vehicles do not pay ANY federal gas tax. They also avoid the Michigan gas tax. If they live in Michigan, they pay an annual EV fee, but that is unrelated to road usage.
- As shown in figure 2 of our report (see below), a typical ICE vehicle driver in Michigan pays over $400 in road taxes. An EV driver pays just 70-80% of that amount—between about $262 and $298 depending on the type of electric vehicle (e.g., BEV, PHEV, or HEV). These figures include widely-sold, relatively high-mileage vehicles. Many ICE vehicle drivers, particularly those with pickups or SUVs, will pay more in gas taxes.
- In the second quarter of 2022, battery electric vehicles sold as a share of total new vehicles reached 5.5% for the first time in the U.S. In Michigan, we anticipate that EV sales penetration will reach at least 15% and possibly 25% of new vehicle sales by 2030. We estimated lost revenue for both scenarios under the current taxation system.
- Assuming a conservative transition scenario, the annual revenue shortfall in road funding because of Michigan’s transition to EVs will grow from 2019’s $15 million deficit to one of $67 million in 2030. At 25% of new vehicle sales in 2030, the shortfall will be $95 million annually under current tax policies.
- We cannot afford to have 25% of drivers avoiding the road taxes borne by other drivers. If we fail to make policy changes soon, we will be unable to maintain our roads by 2030. Furthermore, those who drive traditional internal combustion engine vehicles in Michigan should not bear nearly the entire road maintenance burden.
- Our purpose in the report was to identify the problem and provide reasonable projections of the consequences. Our report does not recommend any specific policy, but we identify policies that could include:
- Annual flat registration fees.
- Mileage-based user fees.
- Per kilowatt-hour fees.
- Miles at registration fees.