Mileage-based fee more effective than California’s new ZEV fee

By Brian Lutenegger

California is among the states that have added a special registration fee for zero emission vehicles. However, research commissioned as part of the enacting legislation casts doubt on the efficacy of the fee in paying California’s infrastructure costs, instead pointing to a road user charge as the most effective solution.

California’s Road Repair and Accountability Act of 2017 (Senate Bill 1) added new taxes on gasoline and diesel fuel in that state to pay for roadway infrastructure. It also added an annual registration fee beginning in 2020 on new zero-emission vehicles (ZEVs), recognizing that these vehicles do not use gasoline for at least a portion of their operation. The new law also asked the University of California, Davis’ Institute of Transportation Studies to evaluate this new ZEV registration fee. That analysis was released in December.

While registration fees for ZEVs are not unique to California, that state has a higher adoption rate for this technology than others. So this new fee has the potential to have a greater impact in California than elsewhere, particularly if former Governor Jerry Brown’s goal of 5 million ZEVs on California roadways by 2030 is realized.

The UC-Davis researchers identify several major drawbacks of the registration fee. Assuming the expected shift toward ZEVs come to reality, they expect roadway infrastructure to be underfunded by more than $500 million annually. And while a gasoline tax is effectively based on usage, the ZEV fee is a flat fee regardless of how many miles per year the vehicle is driven.

Further, there are equity concerns. For example, plug-in hybrid owners would pay both gasoline taxes and the registration fee. And ZEV owners, the study authors found, would pay even more under the fee than with a gasoline tax alone.

Another critical issue is that the new fee may also suppress ZEV sales at a critical time in the development of the technology, preventing California from meeting its climate change and air quality goals.

The study concludes with a comparison of two other funding mechanisms: a tax on alternative fuels similar to the gasoline tax and a road user charge, i.e., a mileage-based fee. The researchers found that the road user charge applied only to ZEVs—leaving the gasoline tax in place for traditional vehicles—is the most sustainable solution. Although administrative costs for fee collection are a concern, the road user charge will ensure California can meet its funding needs and won’t be susceptible to reduced tax collection due to efficiency increases.

To recover declining gas tax revenues, at least 20 states have passed legislation requiring hybrid and/or plug-in electric vehicle owners to pay a special registration fee of up to $200 in addition to the standard fees.

While states need to recover lost revenue from declining gas tax revenues—due to both increasing fuel efficiencies as well as increased sales of ZEV and other hybrid vehicles—the study shows that a special registration fee is not the best way to do so. Such a fee will not allow California to pay its infrastructure costs and decouples the cost from actual vehicle usage. A road user charge is a far better way to ensure that drivers pay their fair share for their actual usage of California’s (and other states’) roadways.

Brian Lutenegger is a Program Associate at Smart Growth America.