EV Adoption Could Exacerbate Transportation Infrastructure Funding Shortfall

31 July 2023 / Brief

In the US, taxes on gasoline and diesel fuel have historically been the source of federal revenue for the Highway Trust Fund (HTF), which is designed to fund maintenance and replacement of road and transit infrastructure. However, the HTF has been chronically underfunded because federal motor fuel taxes have not been raised since 1993, and they are not indexed to inflation. The broad adoption of electric vehicles (EVs) could exacerbate the funding shortfall and—additional resources from the Bipartisan Infrastructure Law notwithstanding—create the need for an alternative funding mechanism, without which road and transit infrastructure would likely deteriorate and potentially increase the cost of moving goods through the supply chain.

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Based on our projections, federal fuel tax revenues could decline by nearly 60 percent if passenger and truck electric vehicle sales made up 100 percent of new annual vehicle sales by 2040. Without a financial offset, such a funding gap could create financial shortfalls and insufficient investments. Businesses and households would need to anticipate higher costs of goods deliveries and logistics due to worsening transportation infrastructure conditions.
Businesses might have to prepare to pay for alternative funding mechanisms such as fees based on vehicle miles traveled (VMT) or on electricity used for charging. Today, revenue for the Highway Trust Fund is collected when motorists purchase gasoline or diesel. In a modified road usage charging system, revenue could be collected based on peak demand and the specific impacts on infrastructure during its use. A shift toward a different revenue collection system, while not entirely costless in itself, could affect variable vehicle costs but might also provide room for efficiencies such as better route choices or time-of-day planning.
Data security would be a critical issue for businesses and households; a new system of telematics—data collected from vehicles via sensors or smart devices for pricing and revenue collection—would be needed to implement a more dynamic charging and cost recovery system. Despite likely operational improvements, systems operators would have to carefully manage information to assuage data privacy concerns. In addition, data collection would depend on new system infrastructure and not on an already established system.