Hybrid Electric Vehicles and Implications for Transportation Finance

Abstract

Fuel efficiency improvements in the U.S. vehicle fleet are slowing growth in gasoline consumption. Although this is desirable with respect to goals for achieving energy security and environmental improvement, it has adverse implications for the current system of transportation finance. Reductions in gasoline consumption relative to the amount of driving that takes place result in reductions in fuel tax revenues that fund transportation projects. The authors estimate the magnitude of the forgone tax revenue when a hybrid electric vehicle displaces a similar-sized conventional gasoline-powered vehicle. The authors find that under several vehicle electrification scenarios, the combined federal and state trust fund contributions could decline by as much as 5% because of new hybrid electric cars to be sold in 2020 and as much as 12.5% because of those to be sold in 2030. Alternative fee systems more directly tied to the use of the transportation system rather than to fuel consumption should be considered, which could reconcile energy security, environmental, and transportation finance goals.