What Would Happen If We All Started Driving Electric Cars?

Electric Cars

Nissan Leaf
What EV adoption could cost governments in lost tax revenue.

Governments around the world are continuing to incentivise the adoption of electric cars as a means of reducing C02 emissions and hence limiting damage caused to the environment.?? But, what would happen if we all took the bait and suddenly ditched our current motors in favour of an electric alternative?

British price comparison company MoneySupermarket.com has endeavoured to find the answer to this question.

Focusing on the UK

Being a UK-based company, MoneySupermarket started off by examining the impact on the British government. At the moment, electric car owners are exempt from road tax, which is usually about $240 for the average British motorist, and from congestion charging which can cost the equivalent of thousands of US dollars for drivers living in London.

On top of this, electric cars are generally granted car insurance discounts and are of course not obliged to pay fuel duty. The company crunched the numbers and found that the average British motorist would save about $1,440 per year by owning an electric vehicle.

This is a significant amount for the average family, but the impact would be even more substantial for the government who would lose over $36.3 billion every year through lost taxes. About 80 percent of this total would come from lost fuel duty, proving the British government’s reliance on this as a means of revenue generation. It should be noted that tax accounts for 10 percent less tax on fuel prices in the UK than it did 10 years ago, but this is due to the cost of raw oil, which has increased at a greater rate than fuel duty increases.

It is unlikely that any government would simply accept this loss and would undoubtedly find other ways of generating the same amount of money from its constituents. MoneySupermarket has suggested that this would therefore likely result in electric cars no longer being exempt from either road tax or congestion charging, as well as a greater rate of tax being applied on electricity usage which would hit all households hard.

Looking Beyond the UK

There are of course only 31 million cars on the road in the UK, so the impact on the United States and beyond would be far more significant.

Let???s start by examining fuel duty (taxes), which would of course be the most significant loss in the UK. There are over 250 million passenger vehicles registered in the USA, more than eight times the number of vehicles on the road in the UK.

Fuel tax rates generally differ depending on the state, but are always cheaper than those applied in the UK, starting at around 30.4 cents per gallon of gas. This means that the US government would lose out on about $1,968,590,000 of tax each year from fuel usage alone if every American driver chose an electric vehicle. With car tax and car insurance rates being cheaper in the United States as well, the tax loss wouldn’t be half as significant for the American government as it would in the UK.

However, American motorists are being offered a tax credit of up to $7,500 for an electric vehicle purchased today.

If every American motorist suddenly bought an electric car, that move could cost the federal government as much as $112.5 billion ($7,500 tax credit multiplied by the approximately 15 million cars sold annually).

Unlike the British government which would recoup their loses with tax increases in other areas, it would be far easier for the US government to simply turn off this tax incentive rather than attempting to get the money back by increasing tax in other areas.

An Electric World

This is a look at just two of the 196 countries in the world, but already the total loss to governments through green car adoption is potentially close to $3 trillion.

The American model will adapt far more easily to the impending electric car infiltration as the government will simply switch off this incentive. Inevitably electric car prices will come down to the levels of current fossil fuel reliant models and the average American would then theoretically slip almost seamlessly into the new world of electric motoring.

Things will be far tougher for people living in Britain though. With tax rises in electricity bills likely to hit all households, meaning that the impact of the electric car movement will not be limited to motorists only. The whole landscape of the British tax system will need to be reviewed.

Electric car photo courtesy of Nissan North America, Inc.

Author: Mark Martin
Mark Martin writes for MoneySupermarket. The company has put together an infographic celebrating the anniversary and highlighting key facts, figures and accomplishments of the various 911 models over the past 50 years. Did you know for example that the three most popular colors for 911s are black, red and white?

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