Fuel Efficiency Is Bad News For State Governments

EconMattersJan 24, 2013, 06:37 IST

By EconMatters

Energy and environment conservation has been high on every nation’s agenda probably even before the oil crisis in the 1970s. Green cars such as hybrids and electric cars have been gaining popularity as well as auto market share in the U.S. driven in part by high oil and fuel prices, as well as government policies, and subsidies in some cases, pushing for higher fuel efficiency.

Most people think “eco-driving” or even carpooling is a win-win-- saving gas money and the environment at the same time. But it looks like what may be good for the environment, is actually bad news for the government.

You see, for each gallon of gasoline or diesel we gas up in our cars, there’s a portion of tax that goes to the state government to fund the building and maintenance of roads and bridges. So unfortunately, more fuel efficiency and less driving even by carpooling means less tax revenue for the government, and the green car is also to blame.

For example, in Vermont, revenue collection of the state’s transportation fund has been shy of their target for seven straight years. According to AP, 25% of Vermont’s expected $232-million transportation fund in the current fiscal year is supposed to come from the gasoline tax of about 20 cents a gallon.

In order to make up for the shortfall in the fuel tax revenue, instead of coming up with ways to cut costs, Vermont and Oregon reportedly are mapping out a possible new scheme of taxing drivers not based on how much fuel is burned but how far each vehicle travels as AP reports.

Although Europe has a longer history and higher adoption rate of fuel efficient cars, what’s taking place in the U.S. right now is actually the conclusion of a U.K. study published back in 2011:

“The drive to promote greener, more efficient motoring will blow a £13bn hole in the public finances as revenue from fuel and road taxes dries up."

“Drivers may end up being taxed more, even as the industry adapts to meet environmental targets….[government will be] forced to look at ways of clawing back the money motorists think they will be saving."

Now the U.S. is projected to have high growth in green car sales. Market research firm Mintel says that U.S. sales of hybrid, plug-in hybrid, and electric cars should reach 440,000 units in 2012 -- a 73% improvement over 2011, reaching 850,000 in unit sales by 2017, or 5% of the U.S. auto market.

Separately, a 2011 study by the J.D. Power and Associates projects major growth, as much as 10%, of vehicles with fuel-efficient technologies by 2016, which would represent a four-fold increase in the sales numbers for green cars compared to 2010.

If these are realistic forecasts, then don’t be surprised to see a Big Brother GPS inside every vehicle in the country as Vermont Transportation Secretary Brian Searles indicated,

“….. calculating how much of a VMT tax is owed would be done through the global positioning system devices that are expected to be standard equipment [capable of tracking location, time] in cars later this decade.”

I personally can’t even begin to count the possible number of privacy concerns having a government GPS inside my car, not to mention the additional resource tracking and collecting this new mileage tax would require, and I thought the U.S. Federal and state government has had enough funding problems already?

I guess the moral of the story is that it’s all about money, and whatever "savings" coming out from one end will eventually need something else (e.g. new taxes) to replenish, at least as far as “government budget” is concerned. Ultimately, taxpayers still end up footing all bills and more--in this case, you get hit with a new mileage tax before even seeing an ROI from your Prius.

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Fuel Efficiency Is Bad News For State Governments