California EV push could cost the state $1 billion in lost fuel tax revenue by 2027

California’s ambitious agenda to reduce fossil fuel use by transitioning the state from gas and diesel vehicles to electric ones promises important climate benefits—but also sets up a potential transportation revenue crisis. New Mineta Transportation Institute (MTI) research explores this challenge in How Will California’s Electric Vehicle Policy Impact State-Generated Transportation Revenues? Projecting Scenarios through 2040. 

The study analyzes how much revenue the state might lose annually from fuel taxes and two registration fees on personal vehicles. Researchers consider eight scenarios that assume different rates of electric vehicle adoption, changes in how many miles Californians drive, and changes in the number of personal vehicles registered. 

“In just three years, by 2027, the state could be losing more than a billion dollars annually compared to the amount raised in 2024,” explains the study’s principal investigator, Dr. Asha Weinstein Agrawal. “That doesn’t leave California legislators much time to establish a replacement for lost revenue. And the revenue lost matters to people’s everyday lives because we are losing money that would otherwise be available for critical maintenance of local streets and state highways, plus support for public transit services.” 

The authors also found that the projected annual revenue raised under the eight study scenarios diverges widely over time. By 2040, the amount of projected annual revenue collected could be as much $8.5 billion less than in 2024, a loss of 64%. (The study uses inflation-adjusted 2024 dollars for all estimates.)

In some scenarios, much of the revenue loss is attributed to the transition to electric vehicles, but the authors also found that if drivers reduce how many miles they drive, the corresponding drop in fuel purchases could reduce state transportation revenue just as much as a fast transition to electric vehicles. 

One bright note is the fact that California’s special vehicle registration fee on electric vehicles, the so-called Road Improvement Fee (RIF), will raise more money as the number of electric vehicles increases. Growing RIF revenue is not enough to fully offset lost fuel tax revenue, but nevertheless covers a healthy portion of the loss.

The authors recommend that the State of California establish a plan for replacing lost fuel tax revenues within a few years, exploring a variety of tax and fee options to augment or replace fuel taxes. One idea worth further study is to charge drivers by the mile driven, an option that the state is testing through a series of pilot studies. Another option would be to tax the electricity used to power electric vehicles.

Total Projected State Revenue Under the Eight Scenarios (billions of 2024 dollars)

Note: “ZEV” = zero-emission vehicle; “VMT” = vehicle miles traveled.

ABOUT THE MINETA TRANSPORTATION INSTITUTE

At the Mineta Transportation Institute (MTI) at San Jose State University (SJSU) our mission is to increase mobility for all by improving the safety, efficiency, accessibility, and convenience of our nations’ transportation system. Through research, education, workforce development and technology transfer, we help create a connected world. Founded in 1991, MTI is a university transportation center funded by the US Department of Transportation, the California Department of Transportation, and public and private grants, including those made available by the Road Repair and Accountability Act of 2017 (SB1). MTI is affiliated with SJSU’s Lucas College and Graduate School of Business.

ABOUT THE AUTHORS
Asha Weinstein Agrawal, PhD, is Director of MTI’s National Transportation Finance Center. Hannah King is a doctoral candidate at UCLA’s Institute of Transportation Studies and the Department of Urban and Regional Planning. H.A. “Burt” Tasaico, PE, is an MTI Research Associate and retired Director of Strategic Initiatives and Program Support for the North California Department of Transportation.

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