President Joe Biden wants to replace the government’s fleet of almost 650,000 vehicles with all-electric models produced in the United States, simultaneously addressing both his climate change and manufacturing agenda.
Biden has put both at the top of his list during his first week in office, while the new members of his administration have also outlined other critical targets, such as beefing up spending on the nation’s deteriorating transportation infrastructure.
But some of the goals create potential conflicts that the Biden administration could find difficult to address. For one thing, the president’s broader push to see American motorists switch from gas to battery power threatens to put even further strains on the already shrinking federal Highway Trust Fund used to maintain roads and bridges.
The fund is largely dependent upon gas taxes — that haven’t increased in nearly three decades. Increases in fuel economy over the years have trimmed revenues, a situation made worse by the sharp decline in travel during the pandemic. But the rise of electric cars could choke off funding entirely.
“As vehicles become more efficient and we pursue electrification, sooner or later there will be questions about whether the gas tax can be effective at all,” Pete Buttigieg, Biden’s nominee to become U.S. Secretary of Transportation, said during confirmation hearings last week.
There is bipartisan recognition that the nation’s transportation infrastructure needs a lot of work. And presidents from both parties have proposed increased spending over the last several decades. What has proved far more divisive is the question of how to pay for that work, despite the potentially huge number of jobs this could create.
The highway fund derives the vast majority of its funding from gas taxes that have been frozen at 18.4 cents since 1993. Considering the pushback that then-President George Bush received for that increase, few lawmakers have since been willing to back a further hike. But the situation is growing dire.
According to the Congressional Budget Office, outlays from the fund will exceed its reserves by a cumulative total of $134 billion by 2030. And that’s just for the highway side — the mass transit account is expected to go $54 billion into the red.
The problems are numerous, starting with the fact that the gas tax is a fixed number that has not been adjusted for inflation. If it were, it would add up to about 34 cents today. Complicating matters:
- Whereas the average vehicle got about 21 miles a gallon when the last increase was approved in 1993, fuel economy jumped to nearly 26 mpg last year. For every 100 million miles Americans drive, that means a nearly $17 million decline in tax revenues
- After years of growth, the number of miles Americans drive each year has begun to level off and actually declined sharply in 2020 due to the pandemic
- The decline could continue as more Americans continue to work and shop at home post-pandemic
- If anything, the vehicles Americans will buy going forward will yield even better fuel economy as hybrids become more and more the norm.
Battery-electric vehicles currently pay no federal road taxes at all.
On the positive side, the switch to battery power could play a substantial role in reducing carbon dioxide emissions. The federal government operated 645,000 vehicles in 2019 — about one-third of those are used by the post office. They clocked 4.5 billion miles that year, consuming 375 million gallons of gasoline, according to the General Services Administration. That works out to 3.57 million tons of CO2.
Converting the entire U.S. automotive fleet to electric would have an impact orders of magnitude greater, though experts don’t expect to see that happen in the near to mid-term. But, even a modest pace could have a conversely negative impact on transportation funding.
BEVs accounted for just 2 percent of all U.S. automotive sales last year, but that is widely expected to accelerate, especially with the rollout of products like the Ford Mustang Mach-E, the Tesla Cybertruck and the GMC Hummer this year. IHS Markit estimates pure battery models will account for a 6 percent share by 2023 and top 11 percent by 2029.
The Highway Trust Fund is expected to take in $43 billion in fuel taxes this year. Compared to a vehicle getting 26 mpg and traveling an average 12,000 miles annually, the fund loses about $85 per car annually. That is, of course, if the federal government continues to rely solely on gas taxes.
The insurance industry offers one possible alternative. A survey by Nationwide Insurance released last month found 10 percent of American motorists have opted for usage-based programs that factor in both driving behavior and the number of miles driven — data collected by a vehicle’s onboard diagnostics system.
A number of states have been exploring such a system to replace their own gas taxes, with California already running a pilot program.
A handful of states, including Kansas, Oregon, South Carolina, Utah and Tennessee have taken steps to make up for their own lost gas taxes, adding fees of anywhere from $50 to $200 on BEVs and, in some cases, plug-in hybrids.
A study by the Mineta Transportation Institute appears to indicate potential public support, finding 49 percent of respondents indicating they support the idea of a flat mileage fee to a gas tax. Such an approach would be more fair than charging by the gallon, backers contend, and would be less regressive as wealthy drivers tend to own newer, more efficient vehicles than the poor.
What Congress might do, however, is another matter entirely. The idea of raising gas taxes received notable pushback during the Buttigieg hearing, though there did appear to be some interest in finding alternatives.
“It’s my view that we ought to be looking at a lot of other options before — or instead of — getting to that one (a fuel tax hike),” said Sen. Mike Lee, R-Utah.
The option of pushing the issue of highway infrastructure funding entirely off the table, however, appears to be growing riskier each year. And with the number of BEVs expected to grow substantially going forward, an alternative to the traditional gas tax may prove critical.
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