What happened: In Sept. 2020 California Gov. Gavin Newsom (D) issued an order that all new cars and passenger trucks sold in the state be zero-emission vehicles (ZEV) by 2035. Eight other states also adopted the rule following approval from the California Air Resources Board in August 2022.

A March 28 report from the Mineta Transportation Institute at San Jose State University now finds the initiative could result in an $8.5 billion annual decrease in transportation revenue by 2040, five years after the sale of new internal combustion engine (ICE) vehicles are prohibited.

Why it matters: The report explored eight possible revenue scenarios that adjust based on speed of transition from ICE vehicle sales to ZEV, vehicle-miles traveled, changes to population, and the number of light-duty vehicles. They found the biggest impact would come from a decrease in vehicle-miles traveled coupled with a rapid transition from ICE vehicles to ZEV. State fuel taxes are projected generate 82 percent of transportation revenue in 2024, but by 2040 that number could fall somewhere between 21 percent and 73 percent of total revenue. Other vehicle fees—such as the annual fee based on the market value of a vehicle and the annual registration fee charged to battery and hydrogen fuel cell vehicles model year 2020 or later—maintain their value but would not compensate for lost fuel tax revenue.

What’s next: If nothing changes, the report warns California could face a $1 billion decrease in transportation revenue as soon as 2027. The researchers recommend state leaders explore a variety of new tax and fee options; create a transparent platform so the public can see how changing revenues affect the state’s infrastructure; and quickly establish a plan to compensate for lost gas tax revenue.

Further Reading: