Global EV Outlook 2019 5. Challenges and solutions for EV deployment

Note: EVSE = electric vehicle supply equipment; DSO = distribution system operator; CPO = charging point operator. Sources: IEA analysis based on CharIN (2018) and SEDC (2017).

Government revenue from taxation

Challenges

Governments typically collect tax revenues from three tax bases: road use (most frequently through highway tolls, congestion charges53 and cordon prices54), vehicle (most often through the registration and/or annual circulation taxes55) and energy use (typically through fuel taxes) Box 5.5).

Box 5.5. Fuel taxes in road transport

Fuel taxes are raised in most countries (approximately three-out-of-four) through the application of taxes added to the gasoline or diesel price. Other countries (around one-out-of-four) subsidise oil-based fuels (IEA, 2018d).56 In 2017, the prices of gasoline and diesel ranged from less than USD 0.1/L of fuel in countries with high subsidies to almost USD 2/L in the countries that apply the highest tax rates. In 2017, oil products represented more than 90% of global transport energy consumption (IEA, 2019b). Gasoline and diesel accounted for roughly 80% of the total of all fossil fuels used in transport and nearly all of the transport tax revenue (IEA, 2019b).

Governments also tax electricity. In terms of global coverage, the share of countries that tax electricity (about 85% of all countries) exceeds those that subsidise it (IEA, 2018d). As a percentage

53Congestion charges are road use charges that vary across different geographical areas and times of the day.

54One example of cordon pricing is the application of fees to regulate access to urban centres.

55Registration taxes often include a component (typically the value-added tax) that depends on the vehicle price and another component (often coupled with the vehicle environmental performance) that does not depend on it.

56The highest taxes per litre of fuel can generally be found in Europe, Japan and several small countries in Asia and Africa. In Europe, approximately 60% of the fuel price consists of taxes. Global regions hosting countries that subsidise transport fuels include Middle East, Africa, Latin America, Central Asia and the Association of Southeast Asian Nations (ASEAN) (IEA, 2018d).

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of the total fuel price, electricity is taxed to an extent that is relatively similar to the one observed for gasoline and diesel (5% to 63% per unit of energy, depending on the country) (IEA, 2018e).57 Including taxes, electricity prices range between less than USD 0.5 per kWh in Saudi Arabia up to USD 0.33 per kWh in Denmark (IEA, 2018e).

Gasoline, diesel and electricity fuel prices and taxes in selected countries, 2017

Transport taxes often differ across vehicle types (e.g. buses, passenger cars, trucks or motorcycles), whether the vehicle is used for a commercial or personal nature, or according to parameters that correlate with the energy efficiency and/or the environmental performance of the vehicle class. Overall, they constitute a significant part of national, state and local government revenue. The combination of taxes on transport vehicle and fuel use, for example, was recently estimated to be as high as 3.5% of GDP (OECD, 2014).

Given that electric vehicles are two-to-five-times more efficient than a comparable ICE vehicle and lead to zero tailpipe emissions of local pollutants in high-exposure areas such as urban roads, EVs have benefited from subsidies and rebates, to varying degrees in many car markets (Figure 5.4) (IEA, 2019a). Depending on the specific case considered, the system of vehicle taxation (either at the registration phase or in the form of recurring annual fees) can be designed in a way that leads to net generation of revenue or be revenue neutral (cases of systems leading to net subsidies are uncommon).58 With a significant transition towards zeroemissions vehicles (including EVs), the volume of vehicles offering good environmental performance will weigh progressively more in the total of all vehicles. All else being equal, this results in a net decline of taxes that are collected through these schemes.

57The highest electricity taxes are in the European Union and Brazil, whereas low electricity taxes are found in the United States, India and ASEAN (IEA, 2018e).

58The combined use of a differentiated set of taxes, excluding subsidies, is by definition a revenue-generating approach. It has characterised jurisdictions that tend to apply high vehicle taxation rates overall, as in the case of the vehicle registration taxes in Denmark (IEA, 2018g). The use of differentiated vehicle taxes enable the models with poor environmental performances to subsidise the incentives for models with better environmental performances and is often referred to as a fee bate or bonus/malus scheme. An iconic example of this approach is the case of France (Government of France, 2018).

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Bonus-Malus (EUR)

30 000

59 In Norway, for example, zero-emissions vehicles have been exempted from parking fees, road tolls and they have been granted free access on ferries. Since 2018, local authorities are authorized to apply fees that are up to 50% of those imposed on ICE cars. The national taxation has not changed and EVs remain exempt from purchase tax, value-added tax, annual tax and road user tax (personal communication with Asbjørn Johnsen, Norwegian Public Roads Administration).

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