Governments are implementing tax hikes and subsidy cuts on electric vehicles to offset lost fuel revenues.
The adoption of electric vehicles (EVs) has led to a notable impact on government revenues globally. According to a report by the Financial Times, citing data from the International Energy Agency, the rise in EVs has resulted in an estimated $10 billion loss in fuel duty revenue for governments around the world last year.
This growing trend towards electrification poses a fiscal challenge for governments that have historically relied on fuel duty as a stable source of income. The report suggests that if the current targets for transport electrification are met, this revenue loss could potentially increase to as much as $110 billion by 2035.
In response to the dwindling fuel duty revenues, several governments have begun implementing measures to mitigate the financial shortfall. For instance, some states in the U.S. have introduced or increased registration fees for EVs. As of now, eight states charge a registration fee of $200 per year, and more than 24 states have a fee of at least $100.
Jeff Shoffner, an EV driver from Tennessee, expressed his concerns to the Financial Times about the doubling of the state registration tax from $100 to $200, stating, “It is more like a penalty.” Shoffner reflects a sentiment shared by many EV drivers who are beginning to feel the financial impact of policy changes aimed at compensating for lost fuel duties.
The shift in policy is not limited to the United States. New Zealand has introduced a road use tax for electric vehicles, charged per 1,000 miles, effectively adding to the cost of operating an EV. Likewise, in Europe, governments are reducing or eliminating subsidies for electric vehicles. Germany’s recent termination of EV incentives led to a significant drop in sales—over 14% in the first quarter of the year and a 50% decrease in January alone, following the cancelation of the subsidies.
The global push towards EVs has been propelled by billions in subsidies and incentives, yet EVs remain a niche market in most countries, with the notable exceptions of China and Norway. Issues such as inadequate charging infrastructure and high vehicle prices continue to expose unrealistic EV mandates across the world.
