Germany last week doubled its consumer subsidies of electric vehicles that cost up to €40,000. But a more powerful measure is in the works to help Germans transition to fuel-efficient vehicles: a high tax on vehicles that get less than about 28 miles per gallon.
The details of Germany’s draft gas-guzzler law are still being worked out. Reuters reported on Monday that a “climate protection surcharge” would double existing fees starting next year on vehicles with carbon dioxide emissions of more than 195 grams per kilometer. That’s roughly the equivalent of 28 mpg.
In Germany, buyers of smaller cars with CO2 emissions below 95 grams do not face any additional surcharge. EVs are totally exempt from motor vehicle tax, at least until 2030. (Bans of internal-combustion vehicles are planned in many countries by the 2030s.)
While the US federal government and some American states provide tax credits and rebates to purchase EVs, many European countries instead place high taxes on all vehicles – and then waive those taxes for electric cars. This has proven very effective in Norway, one of the world’s capitals for EVs.
In other words, instead of reducing the price of an EV, set a high tax on all cars, especially those with high emissions. This strategy could be used in a bonus-malus strategy where proceeds from a gas-guzzler tax are used to fund EV rebates, thereby placing the burden on consumers driving high-emission vehicles.
Surprisingly, the US already has a gas-guzzler tax on the books. The Energy Tax Act of 1978 amended the Internal Revenue Code to dissuade manufacturers from making gas-guzzling cars – and consumers from buying them. That tax could be as high as $7,000 for vehicles with EPA efficiency in the mid-teens.
But in typical fashion, the rule was gutted by exempting SUVs and trucks. David Reichmuth, senior engineer for the Union of Concerned Scientists Clean Vehicles Program, explains:
SUVs and trucks are exempt, and the cutoff is 22.5 mpg on the unadjusted CAFE test. That’s around 17 mpg on the sticker (depends a bit on the car), so only low-volume sports cars are going to be subject to the tax. The tax ranges from $1,000 to over $7,000, but that highest value is for below 12.5 mpg as tested, so less than ~10 mpg on the sticker.
I’m not sure any vehicles are in that category today. So the gas guzzler tax is on the books, but the MPG level and SUV/truck exclusion mean that it’s a non-factor.
Regressive gas taxes are a non-starter in the US. In the current political climate, increasing EV tax credits, are also stalled. While Europe and China expand electric vehicle incentives, the US is being left behind in the global EV market.
We already have a gas-guzzler tax in effect. Why not use it?
The question is if American lawmakers have any appetite to remove the exemption for trucks and SUVs – and update it to include all vehicles that get below about 20 to 25 mpg. That could provide a disincentive from buying the least efficient vehicles on the market. At the same time, it would raise funds for incentives to buy EVs.
Is it time for a bonus-malus system like that? The 2020 Jeep Grand Cherokee Trackhawk 4WD, which gets 13 miles per gallon, is the country’s least efficient SUV. Should the Cherokee Trackhawk be taxed the same as a Tesla Model 3 or Chevy Bolt?
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