Electric vehicles are becoming increasingly popular, but with this rise in popularity comes a potential issue for states like Michigan –  a decrease in revenue from fuel taxes. Fuel taxes are a major source of funding for road maintenance and construction, but as more drivers switch to EVs, revenue generated from these taxes for road and infrastructure maintenance will decrease.

According to a recent study by the Center for Automotive Research, Michigan could see a $60 – $95 million decrease in revenue from fuel taxes.  The projected $95 million budget deficit translates to 840 miles of roads not being resurfaced every year, according to the County Road Association of Michigan. In 2021, about 24.5% of all Michigan road miles were evaluated as “good” and 35.2% were considered “poor.” 

About 5.8% of new cars purchased last year in the United States were EVs, according to Cox Automotive. But Anderson Economic Group’s “conservative” projections expect Michigan EV sales to hit 15% to 25% by 2030.

Michigan is not alone in this issue. In fact, many other states and countries around the world are also facing the same problem. The decrease in revenue from gas taxes is a global concern as more and more governments are encouraging the adoption of electric vehicles as a way to reduce emissions and combat climate change.

In Norway, for example, EV sales have surpassed those of their Internal Combustion Engine (ICE) counterparts. The country is now facing a similar budget shortfall for road maintenance. In the United Kingdom, the government has proposed a “road usage charge” for electric vehicles to make up for the loss of gas tax revenue. 

It’s important to note that this decrease in revenue from gas taxes does not negate the benefits of electric vehicles. EVs produce zero tailpipe emissions, which greatly reduces air pollution and helps combat climate change. However, fuel tax revenue shortfalls from EV adoption is an issue that needs to be addressed in order to ensure sufficient funding for road and infrastructure repairs and maintenance 

Further illustrating the impact of EV adoption on declining revenues from fuel taxes is EV affordability. With the average cost of an EV in 2021 being around $66,000, according to Kelley Blue Book, only drivers who can afford EVs are paying less in taxes. In short, motorists who can most afford to pay fuel taxes are able to avoid them through EV ownership. 

One solution to this problem could be to shift the funding mechanism for road maintenance and construction away from fuel taxes. This could include implementing a road usage charge, as was proposed in the UK, or finding other sources of revenue such as higher vehicle registration fees, EV charging tariffs, tolls or parking fees.

At least eight U.S. states considered pilot programs last year to tax electric vehicle drivers, according to Pew Research. Utah, Oregon and California have already rolled out programs to recoup lost revenue.