We’ve written about the potential distortive effects of the electric vehicle tax credit in the new tax-and-environmental law—namely, the sourcing requirements for components may steer manufacturers toward heavier materials. The surging weight of some EVs was brought to the fore by President Joe Biden’s filmed test drive of the astonishingly heavy electric GMC Hummer. At 9,000 pounds (4.5 tons), it’s the equivalent to three gas-powered Honda Civics stacked on top of each other—but it goes from 0 to 60 in about three seconds.
This is the context in which we revisit incentivizing EVs in tax policy. Switching to electric is good, but by some measures, the aforementioned Hummer is no better for the environment than one of those stacked gas-powered Civics.
Unfortunately, making sure EV credits are available for crossover vehicles seems to be the trend rather than incentivizing the smallest vehicle (and consequently the smallest battery) a consumer will accept. Tax policy should steer consumers toward EVs, and manufacturers toward models, that maximize the benefit of revamping our transportation infrastructure.
The solution lies in Norway … with an American twist.
Norway is famously forward-thinking when it comes to EVs. Thanks to the usual things like tax incentives (but also free parking and tolls for EVs), it has the most EVs per capita of any country in the world. It aims to go even further, with a stated policy goal that all new car sales should be EVs by 2025. (Both New York and California, however, plan to implement similar measures by 2035.)
Norway has about a third of the per-capita roadside death rate of the US, so the move doesn’t seem to compromise safety. It makes sense, then, that we might look to this electric utopia for tax advice.
Norway taxes EVs by weight, at a rate of about $1.26 per kilogram, which means most EVs will be taxed about $1,500 to $3,000. The GMC Hummer would come in at about $5,670. It seems like a lot, but if you imagine the tax both as compensating for the increased extraction of resources to build the 200-plis kilowatt-hour battery and the additional risk on the road, it’s a truly terrible deal for society writ large. The problem is when you try to translate the Norwegian experience to the US, where limited EV range is among consumers’ biggest complaints.
The American Twist
But there is a solution to the inverse relationship between battery size and miles per gallon of gasoline-equivalent engines: Tax the weight of the battery.
About 1.4 of the Hummer’s 4.5 tons is battery. For context, the Nissan Leaf battery comes in under half a ton. Most of the deleterious effects on the environment and society inherent in the manufacturing and use of an EV come from the battery pack, from the toxic chemicals needed to store energy to the mining process for those chemicals—and even stopping distance. The MPGe for the Hummer is 47 combined highway and city, but the Nissan Leaf is 123.
Taxing the battery’s weight eliminates manufacturers’ incentives to reduce safety or comfort in furtherance of reducing weight. Now this may very well mean that GMC will put a full sectional sofa in the back of its 2024 Hummer EV, and MPGe would necessarily go down. But if consumers want to get less range in furtherance of comfort and size, they can at least be made to do so without using more battery resources.
A battery weight tax can also drives innovation. If the tax was instead on a battery pack’s kilowatt hours, manufacturers would have no incentive to get more range out of less battery material, save for reducing weight and increasing MPGe. Battery sizes would plateau at their current resource-intensive level, and innovations would come from other parts of the vehicle.
Taxing battery weight is an indirect way to get at the underlying resource consumption in battery manufacturing and production. A manufacturer that can find a new method of storing energy that weighs significantly less can reap benefits in the form of a reduced out-the-door cost to consumers for their vehicles.
Additional Factors to Consider
Tax policy is in a unique position to drive EV innovation, if you’ll pardon the pun, in the direction of increased efficiency, reduced resource usage, and safety. Outside-the-box thinking should be employed where necessary to move the tech forward. A tax multiplier on stopping distance, for instance, could be keyed to render the Hummer EV’s appalling 211 foot, 70 mph figure effectively impossible to afford. An acceleration or top speed governor could be mandated on vehicles above a certain curb weight.
Moving the American consumer to electric has deleterious effects on the environment from batteries, additional electricity generation, and rolling out electric charging infrastructure. If you imagine a battery as a costly resource, it makes sense that distributing that resource across a bunch of smaller conveyances so more people can get to work is better than centralizing it all in one behemoth SUV.
But revenue raised by a battery weight tax could help pay for critical charging infrastructure and block grants for advancing battery technology. The future is almost certainly electric, and the EV market is gaining traction, but it’s young enough that it’s still malleable. If we act now through sound policy, we can direct innovation toward efficiency and safety.
This is a regular column from tax and technology attorney Andrew Leahey, principal at Hunter Creek Consulting and a sales suppression expert. Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @email@example.com.