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Electric vehicles and road-use pricing - June 2018

Proposition: "Pricing of road-use for electric vehicles should be the same as fossil fuel-powered vehicles."

Background information (provided to panellists)

Electric car users currently enjoy a number of subsidies (concessions) from governments in Australia. Electric car users do not pay the 40 cent per litre fuel tax (excise) which goes towards funding Australian roads.

The luxury car tax of 33 per cent commences at a higher level of car price for electric cars than for other vehicles ($75,526 versus $65,094). Electric cars made by Tesla can cost $150,000 to $200,000. Some Australian states and territories offer discounts on stamp duty and on car registration for electric cars which are not offered to other cars.

Electric cars are powered by batteries which can be recharged through plugging into electricity sources, such as from vehicle power stations using electricity supplied from the national electricity grid.

The petrol consumption of cars varies with a number of factors not directly related to road use, including the age and condition of the vehicle, the size of the car and the type of car used.

Collaborator credits: we would like to thank Margaret Arblaster for her assistance in framing this poll question and for her expert overview of the results.

Overview of poll results by Margaret Arblaster

Margaret Arblaster

Margaret Arblaster

Electric car use in Australia has been slowly growing on the back of global usage trends, media interest and increased consumer awareness.

The International Energy Agency argues for fiscal incentives to encourage electric vehicle purchase, as well as complementary measures that reduce the cost of driving them. Australia’s Electric Vehicle Council has also argued for tax breaks.

Read more

NEP Q30 - Chart 1 (Responses)

NEP Q30 - Chart 2 (Responses weighted)


Responses (25)


 

Peter Abelson

Uncertain (neither agree nor disagree)

8

The pricing principles should be similar. Road user charges should reflect congestion costs, road wear and tear and third-party environmental costs. These charges may vary with vehicle type.


 

Garry Barrett

Disagree

7


 

Matthew Butlin

Agree

7

It is unclear whether this question assumes the current framework of road use charges or an ideal road charging framework that addresses congestion, impact on road and other impacts on the asset and other road users related to the use of the road. I assume externalities beyond those applying to other road users - especially green house gas emissions - are dealt with through other means such as the pricing of fuel. On that basis the road charging regime should treat fossil fuel - powered and electric cars equally.


 

Lisa Cameron

Agree

8

Although electric vehicles have the advantage of not using fossil fuels and so reducing carbon emissions, they still contribute to road congestion, the need for road infrastructure and maintenance, parking and traffic accidents. Hence, drivers of these vehicles should contribute to covering the costs through the same pricing of road-use as for other vehicles.


 

Ken Clements

Strongly agree

10


 

Lin Crase

Agree

7


 

Kevin Davis

Disagree

6

Money is fungible, so even though the fuel levy is "linked" to road funding for public perception reasons I don't see it really in that light, rather than as just another source of government tax revenue. To the extent that there are social benefits from electric vehicles, then a lower overall tax rate for them is probably warranted - but how that can be efficiently and effectively designed is another matter.


 

Janine Dixon

Agree

7

With all its imperfections, the present fuel excise internalises the externalities – pollution and congestion – associated with fossil fuel-powered vehicles. The proposition to price road usage separately is attractive in that electric vehicles avoid the fuel excise and thereby avoid paying for road use altogether. With a proposition such as this though, the devil is in the detail. How big should the charge be – is it intended to raise sufficient revenue to maintain the entire road network or just part of it, and would any other tax (such as the fuel excise) be changed to neutralise budgetary impacts? How would the charge be administered? Would there be winners and losers and would the losers require compensation? Would rates differ in inner-city, suburban and rural areas? Should road-use pricing be used to reduce congestion at peak times and reward road users for travelling off-peak? And if so, would low-paid workers (who often have less flexibility in their working hours) be more adversely affected than high-paid workers, and does this matter? As electric vehicles become more widespread, road-use pricing will remain a topical issue, but unless these details were well-understood and addressed in the context of Australian road use, it will be attractive in theory only.


 

Uwe Dulleck

Agree

7

I am not sure whether I need to pick agree or disagree, it sounds that under current rules the same 'pricing of road-use' implies lower (or no) luxury car taxes for normal electric cars, i.e. the higher price should be reflected in the tax regime, whether this is currently done sufficiently is a good question. Another question is whether the (luxury) car tax purpose is to tax road use, that would be better done by taxing use not ownership. With modern technology it could be done based on km driven with a car, maybe multiplied by a factor depending on weight of the vehicle. If it is about road use and maintenance of the infrastructure, I guess, that all of this is not that important as heavy trucks will be the main issue. This question is then just about raising revenue for government. Is it the worst of all taxes? No! But it doesn't make too much sense to think about this purely from a 'user pays' perspective.


 

Saul Eslake

Strongly agree

9

There are good public policy reasons for encouraging the take-up of electric cars. But public policy already provides in-built incentives for that. The use of electric cars doesn't attract the petrol excise and, as the question mentions, electric cars are subject to a higher threshold for the 'luxury' car tax (a bad tax, in my opinion). As electric cars increase their share of the total vehicle fleet, governments' ability to pay for road maintenance and construction from the proceeds of petrol excise (even though there is no strict hypothecation of that revenue) will decline. Road user charging is an ideal replacement as a source of revenue. But there's no obvious reason why electric vehicles should attract a lower road user charge (especially considering that electric vehicles domiciled in most states, other than Tasmania, will be operated by electricity generated by burning fossil fuels).


 

Gigi Foster

Disagree

7

The proposal is an impossibility, given that there is no single price for road-use paid by fossil-fueled vehicles: the fuel tax impacts different fossil-fueled vehicles differently, depending on the very factors mentioned in the question. Electric vehicles do enjoy some advantages that the government could withdraw, which counterbalance to some extent their disadvantages (e.g., high price, inconvenience of re-charging, limited range), but the fact that fuel-powered vehicle sales still vastly outnumber sale of electric vehicles in Australia shows that the median Australian consumer still prefers the former - so present policy settings are not creating a significant distortion in favor of electric vehicles. As electric vehicles become more competitive with fossil-fueled vehicles in terms of price and other features, it may make sense for governments to change their road-maintenance funds collection mechanism away from fuel taxes and towards other types of taxes, tolls, and/or levies. As a more general point, moving ourselves away from fossil fueled vehicles and towards vehicles that create emissions through draws on the national electricity grid rather than at point of operation may make it easier for policy-makers to monitor and/or manage environmental pollution.


 

john freebairn

Strongly agree

10

The whole gamut of current taxes on motor vehicles should be reformed as proposed by the Henry Review and others. Current fuel excise, luxury car tax, and state registration, conveyance duty, and others should be replaced with (i) a road use charge based on weight per axle times kilometres travelled, (ii) a congestion fee based on location and time of day, if not actual congestion, and (iii) marginal pollution costs. For (iii) a lower excise is appropriate for fossil fuel vehicles and a similar tax on fossil fuel supplied electricity used by electric vehicles. The luxury car tax is both distorting and inequitable: why tax luxury cars but not luxury boats, holidays, clothing, etc?


 

Paul Frijters

Strongly agree

10

This is a complete no-brainer. Electric cars get their energy off the grid and thus from whatever puts energy into that grid, which is mainly fossil-fuel. So the difference in 'caused emissions' isn't that great (though there are lots of nuances here to tell, including efficiency of energy conversion).There is a totally different argument for subsidising electric vehicles, which is that they cause less local air pollution, which has strong mental health effects. However, this is an argument for exempting them from tolls leading into the city, not for transportation outside the cities. Of course, since the current toll roads are monuments of corruption in Australia, there are important questions to ask as to just who is going to be paid for what by whom when it comes to exemptions. For instance, are the 'road owners' compensated by the state for not charging electric vehicles (ie a public subsidy)? If so, then one should suspect that that is the real game going on here. I have no time to check such possibilities, but urge caution in staring too blindly at the issue of emissions at the expense of forgetting to watch the money. Cui bono?


 

Lata Gangadharan

Disagree

8

Fossil fuel powered vehicles clearly create negative externalities in society. Electric powered vehicles are a viable alternative to fossil fuel powered ones and also reduce the negative externality being created. The government should therefore intervene (at least in the short run) in the market, in this case through subsiding electric cars, in order to reduce the market failure.


 

Prue Kerr

No opinion

8

If the object of reducing environmental damage is primary and the distributional outcomes consistent with its impact, the transition to electric transport requires such incentives or market interventions.


 

Geoffrey Kingston

Agree

6

It seems that carbon emissions per each electric car in Australia are 3 to 4 times as great as carbon emissions per fossil-fuel-powered car, owing to our comparatively high reliance on coal-generated electricity. So if you think that carbon emissions represent a dangerous externality then you would want to impose much higher road-use pricing on electric cars. On the other hand, fossil-fuel-powered cars emit more pollutants other than carbon dioxide. The 2 types of car probably impose similar levels of congestion & road damage. Overall, then, I'm inclined to similar road-use pricing for the 2 types of car.


 

Michael KNOX

Strongly agree

9

Holland et al (2016) do a nation wide US survey of the contribution  of electric vehicles to greenhouse gases in different US locations. They note that in the overwhelming majority of locations the greenhouse gases from generating electricity to charge electric vehicles is GREATER than if the vehicles had been powered by internal combustion engines. Electric vehicles only decrease greenhouse gases in net in very congested major city locations. This suggests than any net environmental benefit  from electric vehicles is vastly overstated.  Hence the pricing of road use for electric vehicles should be the same as fossil powered vehicle.


 

Tony Makin

Agree

7

If the rationale for subsidising electric cars is to limit emissions, it doesn't make much sense if charging their batteries depends heavily on coal generated power. It would be interesting to know the average quantum of emissions per vehicle for running electric versus petrol/diesel.


 

Lionel Page

Disagree

7

The gain in reduction of negative externalities from using electric vehicles should first be estimated. Provided that the manufacturing and use of electric vehicles reduce air pollution (and noise pollution) enough, taxation should reflect these smaller negative externalities and be more beneficial to electric vehicles users. A sound policy requires a good assessment of the full environmental footprint of the use of electric vehicles, including the fact that, in Australia, they often use grid electricity generated by coal power generators.


 

John Quiggin

Strongly disagree

8

The explanatory statement is wrong. Since revenue is fungible, it is incorrect to state that "fuel tax (excise) which goes towards funding Australian roads". In economic terms, the fuel excise is a mixture of (a) a road user charge which should incorporate a return to capital(b) a tax on externalities imposed by motor vehicles of all kinds (crashes, congestion and so on). (c) a tax on local and global externalities from burning petrol. Of these, (c) is appropriately applied to petrol-driven cars only


 

Rana Roy

Strongly agree

9

If the proposition above is taken to mean that the PRICING of road use should be on the same basis – and not that PRICES for each instance of road use should be the same – then my answer is an emphatic yes. For more than twenty years and in dozens of published studies, I have argued that the only reliable way of internalising the several various external costs of road use – accidents, congestion, air pollution, CO2 emissions, etc. – is at the point of use. Neither the vehicle in the showroom nor its fuel can provide an accurate measure of the externalities in question, considered independently of the trip undertaken, the distance driven and the conditions under which it is driven. It is each trip itself that needs to be taxed so as to raise its price to its marginal social cost. We have the technology to do this and investing in its application to road pricing is the best investment that governments can make in this field. In contrast, every virtue-signalling short-cut proposed over the years, by way of subsidies and tax concessions to favoured vehicles and fuels, has ended in tears – the last major instance being the favourable tax treatment of supposedly climate-friendly diesel-engine vehicles leading to increased deaths from air pollution. Now if a consistent marginal cost pricing system were applied to each trip, some trips by electric vehicles would be charged more than trips of the same distance by conventional vehicles. To take an extreme example: an electric vehicle drawing its power from a National Grid supplied largely by coal and crossing a major-city CBD at peak hour would pay more, not less, than would a petrol-engine vehicle crossing an equivalent distance on an empty road. Of course, one can equally well imagine examples where an electric vehicle would pay less. The point is to ensure that each trip pays its correct price as determined at the time and place in question. The correct price cannot be determined by an a priori government decision to favour the latest product of the latest rent-seeker.


 

Peter Sheehan

Agree

8


 

Hugh Sibly

Agree

8

The proposition specifically refers to road use pricing. The efficient price for road use is equal the additional cost of road degradation caused by the road use plus congestion cost imposed by that road use. So the efficient charge for road use does not differ between equivalent fossil-fuel and electric cars. Of course this type of pricing is not used in Australia. The fuel excise tax is not a good approximation to an efficient road use charge, so applying some sort of equivalent tax to the small number of electric cars is unlikely to yield any significant efficiency gains. More importantly, the fuel excise tax has a role in pollution reduction. For this reason it is an efficiency increasing tax on fossil-fuel using machinery, and it is not efficient to apply an equivalent charge to electric vehicles (though it would be efficient to tax any pollution from electricity generators).


 

Julie Toth

Uncertain (neither agree nor disagree)

8

This is yet another example of old taxes and charges that are no longer fit for purpose and no longer meet good policy objectives. Ideally, a radical overhaul would be better than more tinkering. e.g. replace all of these vehicle & fuel taxes/charges with usage, congestion or emissions taxes/charges that directly target the various negative externalities associated with powered vehicles of all types. This would effectively 'price' vehicles differently, but it would be based on their actual externalities, not the fuel or tech used.


 

Joaquin Vespignani

Uncertain (neither agree nor disagree)

6