Why Alberta's new tax on electric vehicles makes sense
Wear-and-tear argument is valid, Lixing Lin says.
In Alberta's recently unveiled 2024 budget last month, a noteworthy regulatory change stands out: the introduction of a $200 annual tax for electric vehicles (EVs) set to take effect as early as January 2025. While this move may appear at odds with the federal government's incentive programs, which offer up to $5,000 for lightduty EV purchases, it's essential to explore the rationale behind Alberta's decision and assess the fairness of the tax amount.
The Why:
The province cites several factors driving the introduction of the EV tax, notably the heavier weight of EVs compared to traditional gasoline and diesel vehicles. While lighter models exist, EVs often weigh significantly more due to battery packs, putting more strain on roads and raising maintenance costs. The average EV car can weigh up to 2,133 kg, compared to 1,500 kg and 1,800 kg for typical gasoline and diesel cars, respectively. Notably, the popular Ford F-150 Lightning truck, in its electric version, weighs 35 per cent more than its gas counterpart. This heavy weight will cause increased costs for road maintenance.
According to one report, EVs can cause 20-40 per cent more road wear than internal combustion engine (ICE) vehicles, emphasizing the need for EV owners to contribute to the upkeep of transportation infrastructure, which they benefit from without paying provincial fuel taxes.
In addition, gas tax is a benefits tax, which means the drivers on the road are the beneficiaries of funds that are collected from the tax. Thus, EV drivers should share the responsibility to fund the transportation infrastructure on which their vehicles cause more damage.
We Are Not Alone:
Alberta's decision to implement an EV tax aligns with similar moves by other jurisdictions. Saskatchewan has had a $150 annual
According to one report, EVs can cause 20-40 per cent more road wear than internal combustion engine (ICE) vehicles ...
charge in place since October 2021. Several
U.S. states, including California, have enacted additional registration/road maintenance fees ranging from $50 (such as in Colorado) to $200 (such as in Wyoming) on EVs since 2021. Some states, such as Kentucky, have implemented alternative fee structures by adding three cents per kWh in additional tax on electricity used for EV charging.
Determining a Reasonable Tax Amount:
Economists Lucas W. Davis and James M. Sallee estimate that taxing EVs in the U.S. could generate an additional $6 billion in tax revenue by 2030. Let's consider a simplified calculation comparing it to Alberta's gas tax.
The annual average vehicle mileage driven in Alberta is 17,637 kilometres, according to the Government of Alberta. Assuming a fuel consumption of 10 litres/100 km, it translates to 1,763.7 litres of fuel consumption per year per gas vehicle.
Currently, nine cents per litre has been applied as the fuel tax in Alberta, so an average of $158.70 is taxed for gas vehicles. Considering the 20-40 per cent additional road wear (let's take 30 per cent as the average) caused by heavy EVs, $206.40 is yielded when we multiply a 1.3 factor for extra road maintenance. This indicates that this newly introduced EV tax by the provincial government is reasonable. If an energy consumption of 5.0 km/kWh is assumed for EVs, the tax can be converted to a mileage tax of seven cents per kWh.
Alberta's introduction of an annual EV tax reflects a pragmatic approach to addressing the evolving transportation landscape. By recognizing the impact of EVs on infrastructure and adopting a reasonable tax amount, the province aims to ensure the sustainability of its transportation system while navigating the growth of electric vehicles.
This policy encourages responsible adoption of EVs and ensures fairness in contributing to road maintenance costs.