By Josiah Neeley & Matt Patterson, June 15, 2022
Over the past several months, TXEnergyProject worked closely with R Street Institute to identify and develop conservative policy approaches in the Texas energy sector. The goal was to identify conservative policies that facilitate reduced emissions, innovation, and environmental protection without the burdensome regulatory hand of government. The product of those efforts, Cleaner By The Dozen: Twelve Reforms to Make Texas Cleaner, Stronger, and Freer highlights the importance of conservative principles in several areas of energy policy. The following is adapted from that paper.
After electricity, the largest percentage of Texas’ emissions come from the transportation sector. In 2018, 32.1 percent of total energy-related CO2 emissions for the state came from the multi-modal transportation sector, which includes both on-road and non-road emissions related to transportation, industry, and commercial and residential construction. Roughly three quarters of transportation sector emissions are on-road emissions from vehicles.[i]
Emissions-reduction efforts for transportation are mostly a matter of federal law and policy, with federal engine and fuel controls under the Clean Air Act being implemented jointly by the U.S. Environmental Protection Agency (EPA) and U.S. Department of Transportation (USDOT). However, there is one area where state policy can play a productive role: the emergence of electric vehicles, which has the potential to substantially alter the transportation emissions landscape. The U.S. Energy Information Agency (EIA) projects that, by 2027, over 1 million EVs and hybrid vehicles will be sold in the United States every year.[ii]
The federal government and some states have attempted to promote EV sales through the use of subsidies and other tax rebates for EV purchases. Yet research suggests these subsidies have only a marginal benefit and are quite expensive for what they achieve. EV subsidies cost somewhere between $350 and $640 per ton of greenhouse gas abated.[iii] This is partly due to the fact that most EV purchasers historically would have bought their EV even without the subsidy, and partly due to the high level of subsidy.[iv]
There are, however, ways to better integrate EVs into the Texas transportation system. In pursuit of this goal, Texas should make the following changes to current law:
1) Allow manufacturers to directly sell electric vehicles
Texas law provides that “a person may not engage in the business of buying, selling or exchanging new motor vehicles” unless they hold a franchise vehicle license for that type of vehicle.[v] Vehicle manufactures are themselves prohibited from holding a license, or from having an ownership interest in a franchise dealer or dealership.[vi]
EV manufacturers have long argued that having to sell exclusively through a franchise dealership impedes EV sales. EVs have different characteristics than traditional combustion vehicles and appeal to customers based on different considerations that may not be a good fit for sales through franchises. EVs also have fewer ongoing maintenance and service needs, and given the revenue generated to dealerships through vehicle maintenance and servicing, some manufacturers worry that franchise dealerships may not have the properly aligned incentives to maximize EV sales. As a result, the main EV manufacturers have so far been unwilling to sell vehicles in Texas through franchise dealerships. Texas should end this impediment to EV sales in the state and allow EV manufacturers to sell directly to consumers.
2) Adopt a fee based on number of vehicle miles traveled
Integrating EVs into the system will also require adapting how Texas funds its transportation infrastructure. In theory, Texas’ gasoline tax is supposed to function as a kind of user fee for vehicles. The more you use the roads, the more gasoline you consume, the more you pay for the building and upkeep of Texas’ transportation infrastructure. In practice, of course, things are not quite so simple. For example, some of the money raised via the gas tax is diverted for non-road purposes. More to the point, the gas tax does not take account of the increasing fuel efficiency of vehicles, nor of alternative fuel vehicles like EVs that do not pay the gas tax at all. So long as EVs remain a small fraction of total vehicles, the fact that they do not pay the gas tax is not a major cause for concern. However, as EVs make up a larger and larger fraction of cars on the road, the current system will become unsustainable. Figuring out how to get EVs to pay their share of road funding is, therefore, an important part of their widespread deployment.
Certain states have attempted to deal with this issue by imposing a flat, yearly registration fee on EVs.[vii] While administratively simple, these fees are often far above what the typical Texan with a combustion vehicle pays in gasoline tax a year. If it is unnecessarily high, an EV fee can go from being a road funding alternative to a punitive measure. Instead, any such fee should approximate the amount that the electric vehicle would have paid into state coffers based on the average miles traveled by that vehicle class.
For an in-depth analysis of these recommendations, visit the complete version of Cleaner By The Dozen: Twelve Reforms to Make Texas Cleaner, Stronger, and Freer. TXEnergyProject will continue to highlight each reform discussed in the study in the coming weeks.
[i] “Technical Report: Statewide On-road Greenhouse Gas Emissions Analysis and Climate Change Assessment,” Texas Department of Transportation, Oct. 2018, https://ftp.txdot.gov/pub/txdot/get-involved/sat/loop-1604-from-sh16-i-35/091020-greenhouse-gas-report.pdf [ii] See “Annual Energy Outlook 2021,” Energy Information Agency, Table 38, https://www.eia.gov/outlooks/aeo/data/browser/#/?id=48-AEO2021®ion=1-0&cases=ref2021&start=2019&end=2050&f=A&linechart=~~~~~ref2021-d113020a.15-48-AEO2021.1-0~~ref2021-d113020a.62-48-AEO2021.1-0~~ref2021-d113020a.63-48-AEO2021.1-0~ref2021-d113020a.64-48-AEO2021.1-0&map=ref2021-d113020a.5-48-AEO2021.1-0&ctype=linechart&chartindexed=0&sid=~&sourcekey=0 [iii] Kenneth Gillingham & James H. Stock, “The Cost of Reducing Greenhouse Gas Emissions,” Journal of Economic Perspectives, Vol. 32, No. 4, Fall 2018 (pp.53-72) Table 2 https://scholar.harvard.edu/files/stock/files/gillingham_stock_cost_080218_posted.pdf [iv] Jianwei Xing et al., “What Does an Electric Vehicle Replace?” (February 16, 2021). Available at SSRN: https://ssrn.com/abstract=3333188 or http://dx.doi.org/10.2139/ssrn.3333188 [v] Texas Occupations Code § 2301.252 [vi] Texas Occupations Code Sec. 2301.476(c). [vii] See Kristy Hartman and Lauren Shields, “Special Fees on Plug-in Hybrid and Electric Vehicles,” National Conference of State Legislators, Oct. 12, 2021, https://www.ncsl.org/research/energy/new-fees-on-hybrid-and-electric-vehicles.aspx.