Stop Subsidising EVs. Start Charging Them.
Key Takeaways
- Subsidising EVs reduces emissions compared to doing nothing, but it is not the same as solving transport's emissions problem.
- Raising fuel taxes on ICEs would achieve the same shift toward EVs as subsidies, while raising revenue instead of spending it, but it remains politically out of reach for now.
- Cheap running costs make EVs induce more driving, which increases congestion and pushes up emissions from the ICE vehicles still on the road.
- Growing overall driving, even with EVs, fuels demand for road construction, which carries its own significant carbon cost.
- EV subsidies compete for the same money and political attention needed to fund public transport and cycling investment and support mode shift.
- Rising EV charging demand is pushing up electricity prices, fuelling both climate backlash and costly government intervention.
- EV subsidies make car-dependent urban sprawl cheaper and more attractive, adding to environmental pressure at the city fringe.
- Electrifying the fleet does nothing to fix the deaths, health costs, and car dependency that come from a car-dominated transport system.
- Road user charging on EVs is not the threat to the transition that critics claim, provided the revenue is reinvested in walking, cycling and public transport.
- AVs should be charged like any other EV on the road, with pricing that accounts for the added congestion caused by empty, zero-occupant trips.
What Next?
Do you need to rethink your subsidies and road user charging policies for EVs?
Introduction
Governments around the world are reaching for the same tool to decarbonise transport: subsidise EVs, and wait for the vehicle fleet to turn over. It is an appealing story. It requires no difficult conversations about driving less, and it lets politicians be seen to act on climate change while avoiding the fights that come with genuine mode shift.
I have previously written about EVs as a useful political pathway to establishing road user charging. A number of jurisdictions, including the UK and the state of New South Wales in Australia, are now moving to introduce charges on EVs in the coming years, partly to address the revenue gap left as fuel tax income declines.
This has triggered concern that charging EVs for road use will slow their uptake, push buyers back toward ICE vehicles, and increase carbon emissions as a result. In response, advocates for road user charging have proposed a range of design tweaks and phase-in schemes aimed at protecting EV growth while still capturing new revenue.
This blog asks a different question. Rather than debating how to charge EVs without denting their sales, it challenges the premise underneath the debate: should we be subsidising and prioritising EV uptake in the first place, or would the same money and political capital achieve more for the climate if spent elsewhere?
The Problems With The EV Subsidy Solution To Climate Change
The logic for EV incentives sounds compelling. We need to reduce carbon emissions from road transport. If we convert vehicles from ICEs to EVs, charged through increasingly clean electricity, we decarbonise the sector and reduce our impact on the climate.
Governments around the world have embraced this logic, offering tax exemptions, purchase discounts, congestion charging exemptions and bus lane access to boost EV uptake. Some of these incentives are now being wound back as EVs fall in price and become mainstream.
It is a logical story, and it has almost certainly reduced carbon emissions compared to doing nothing. But it rests on a narrow view of the transport system, and that narrowness creates a number of serious flaws.
Problem 1 — Induced demand increases congestion and emissions.
Evidence is emerging that the low running costs of EVs are increasing how much people drive. All else being equal, more driving means more congestion, and more congestion means higher emissions from the ICE vehicles still on the road.
Problem 2 — Increases demand for road construction.
Growing the overall level of driving, even if the vehicles are EVs, fuels congestion and strengthens the political case for road expansion. Road construction is itself carbon intensive, on top of the induced demand it generates once built.
Problem 3 — Prioritises motor vehicles over mode shift.
EV advocates are genuinely motivated by climate action, but the evidence on transport emissions is consistent: cutting emissions requires a shift away from cars, not simply a shift to cleaner ones. Subsidising EVs works against this. It makes driving more appealing at exactly the moment we need people driving less, and it diverts funding away from public transport and cycling, the alternatives that would deliver the mode shift we actually need.
EVs also carry significant embedded carbon in their manufacture, particularly in battery production. The more vehicles we build, electric or not, the more of this upfront carbon cost we lock in.
Problem 4 — Increases the demand and price of electricity.
Every EV charging from the grid adds to electricity demand. Meeting projected EV charging needs is estimated to increase demand across the entire fleet by around 15%, and by up to 50% at peak times, requiring costly upgrades to generation and grid infrastructure.
This added demand pushes up electricity prices, with two significant consequences. It fuels public backlash against climate action more broadly, and it forces governments to spend heavily subsidising energy-intensive industries, money that could otherwise support public transport investment. EVs are not solely responsible for high energy prices, but they are a contributing factor. Less driving and more mode shift would ease this pressure rather than add to it.
Problem 5 — Increases the demand for car-dependent suburbia.
Heavily subsidised roads and low-cost EV running costs both make it cheaper to live further from where people work and access services. This fuels demand to convert greenfield land on the urban fringe, with significant environmental consequences that have nothing to do with tailpipe emissions.
Problem 6 — All the other problems of a car-dominated system.
EVs reduce tailpipe emissions, but they do nothing to solve the rest of the car-dominated system's problems: crashes causing death and serious injury, costs to emergency services and health systems, unhealthy and sedentary lifestyles, and car dependency that forces households to spend upwards of $10,000 a year just to access jobs and amenities. None of this is solved by changing what is under the bonnet, including the parking demand every vehicle still generates regardless of what powers it.
Given these problems with EV subsidy policy as a response to climate change, is there a better way to reduce carbon emissions without the unintended consequences?
The Politically Impossible Option
There is another way to shift the balance between EVs and ICEs, one that does not rely on taxpayer subsidy at all: make ICEs pay more, rather than making EVs pay less. Increasing fuel taxes would achieve the same shift in relative cost, while generating revenue rather than spending it.
This approach has real advantages over subsidy. It would encourage the switch to EVs while raising funds that could be directed toward cycling and public transport, the investments that actually drive mode shift. It would also open the door to introducing road user charges on EVs without denting their competitiveness against ICEs, delivering both objectives at once rather than trading one off against the other.
The problem is political, not economic. The appetite for raising fuel taxes has shrunk in recent years, and this year in particular, as fuel prices have already spiked on the back of the conflict with Iran. Higher pump prices have done what price signals reliably do: demand for EVs and public transport has picked up as a result. But this is a fragile, externally driven shift rather than a deliberate policy choice, and it is likely to reverse as fuel prices ease and the pressure driving these behaviour changes fades.
This leaves fuel tax increases as the theoretically superior option that is, for now, politically out of reach. The question that follows is whether there is a second-best path: one that does not require taxing ICEs more heavily, but still avoids the flaws of the subsidy model set out above.
What about road user charges on EVs on their own?
If raising fuel taxes on ICEs is politically off the table, does that mean we should also rule out road user charges on EVs, for fear of discouraging their uptake?
Not necessarily, but the debate needs to move past a simple charge-or-no-charge binary. The level of the charge is what actually matters. Set it too low and it barely covers the cost of administering the scheme. Set it too high and it tips the balance back toward ICEs, undermining the very transition the subsidies were meant to support. Somewhere between these extremes is a sweet spot.
Getting that level right also means being honest about the comparison. If we were designing road user charges for all vehicles from scratch, we would price in the pollution each vehicle produces, meaning ICEs would pay more than EVs. On that basis, it is entirely reasonable for EV charges to sit below what ICE drivers pay in fuel tax, even though fuel tax itself is already too low to offset the scale of subsidy driving currently receives, estimated at up to 50% of its true cost.
The second, and more consequential, question is what happens to the revenue. If it is reinvested in measures that cut carbon emissions by more than is lost through any reduction in EV uptake, the policy is a net win for the climate, before even counting the safety, health and congestion benefits that road user charging delivers more broadly.
This is the crux of the argument. Directing meaningful revenue from EV road user charging toward walking, cycling and public transport is the mechanism that makes the policy work.
What about AVs?
Autonomous vehicles are currently electric, and there is no reason to treat them differently from any other EV when it comes to road user charging. If anything, the case for including them is stronger. AVs introduce the possibility of zero-occupant trips, vehicles driving empty to reposition, collect a passenger, or return home, which adds to congestion without adding any of the transport benefit that comes from actually moving people. A charging structure that accounts for this, rather than treating an empty AV the same as a fully loaded one, would better reflect the real cost each trip imposes on the system.
ICE-powered AVs do not yet exist, but there is little reason to assume the pattern would differ if they did. The same principle applies regardless of what powers the vehicle: if it uses the road, it should contribute to the cost of that road, and the charge should reflect the impact of the trip, not just the vehicle's mode of propulsion.
Conclusion
EVs are not the climate villain of this piece, and road user charging is not an attack on the EV transition. The real target is a policy logic that treats vehicle electrification as the whole answer to transport emissions, when it is at best a partial one.
Subsidising EVs while leaving the underlying incentives to drive untouched simply shifts the type of car doing the damage. It still induces demand, still fuels road construction, still entrenches car-dependent suburbia, and still leaves us with the crashes, inactivity and inequity that come with a car-dominated system. None of that disappears because the vehicle is electric.
Road user charging on EVs is not the threat to decarbonisation that its opponents claim, provided two conditions are met. First, the charge needs to sit at a level that reflects the lower pollution cost of EVs relative to ICEs, rather than being calibrated as a blunt revenue grab. Second, and far more importantly, the revenue needs to be reinvested in walking, cycling and public transport rather than swallowed into general road spending.
The politically easier path of raising fuel taxes on ICEs may be off the table for now, but that does not mean we are left choosing between subsidising EVs or doing nothing. The better option is to charge EVs, including AVs, for their use of the road, and to direct that money towards the alternatives to driving. That is the policy mix that will deliver the best outcomes for both the environment and the overal transport system.