Iceland's world first: What does it teach others?

Ten years ago nobody talked about Iceland and road user charging.  Even five years ago there was little thought given to the small European island, which is both outside the European Union and inside NATO.  With a population barely exceeding 400,000, it ranks alongside the Bahamas and Brunei in numbers.  In economic size it sits alongside Honduras, Cyprus and Georgia, although in GDP per capita (PPP) it exceeds Australia, Germany, Japan, France and Saudi Arabia.   Iceland's land area is slightly smaller than Guatemala, but larger than Hungary, south Korea or Jordan.  It's more than double the size of Switzerland or the Netherlands.  However, its road network is small in length, akin to Burundi and smaller than North Macedonia. It has a similar road density to Australia, indicative of a vast area of undeveloped land.

Around 64% of the population of Iceland lives in the Reykjavik metropolitan area. Around a fifth of its population are immigrants, a quarter of whom are Poles. 93% of the population speak Icelandic, but around 98% know English.

The point of all this is to note it is unique in many ways, but it is not especially small compared to many countries. It certainly is a high-income country, and has a notable number of immigrants as a proportion of population.

Given all that, the launch on 1 January 2026 of the world's first all vehicle road user charging (RUC) system is notable as an achievement. 

I wrote before about the launch of EV/PHEV/Hydrogen light vehicle RUC as a big step forward and then again in 2025 it was confirmed that Iceland would transition all vehicles to RUC, and abolish fuel tax. 

Not only is it an expansion of scope of the EV/PHEV/Hydrogen vehicle "kilometer tax", but it also appears to replace the heavy vehicle kilometer tax that has been in place since 

How is it being implemented?

Electric, plug-in hybrid and hydrogen light vehicles have been subject to the fee since early 2024, so will continue to pay as before.  They comprise around 16.5% of the vehicle fleet as of the end of 2025.  Around a third of cars sold new in Iceland in 2025 are battery electric vehicles, with another 21% cars sold being plug-in hybrid vehicles.  

As the fee applies for distance travelled in January 2026, it is expected that an odometer reading will be submitted on 1 February 2026 (with the deadline of 14 February for submitting it).  Those that have not submitted a reading for distance travelled in January will be assessed based on the average distance travelled by a car in Iceland during the month of January.  This is the basis for future fee payments. Either provide a measurement or be invoiced for an average.

If no odometer reading is made by 1 April 2026, a fine of ISK20000 (US$164.28) will be levied and it will be mandatory for the vehicles to be driven to a vehicle inspection point to have the odometer read.  On this occasion, vehicle owners will have 30 days to do this after 1 April.

There are various options for vehicle owners to submit odometer readings:

• The Icelandic Government's "island.is" app;
• Icelandic Government's internet portal account;
• N1 app (app for a  fuel, EV charging station and convenience store chain)
• At scheduled vehicle safety inspections (Most vehicles are required to be inspected annually)
• Scheduling an odometer reading at a vehicle inspection station.

Vehicles up to a maximum registered weight of 10 tonnes (and rental cars) must submit a reading at least once a year, but may do so every 30 days.  Vehicles above that weight must submit a reading at least once every six months, but can submit new ones at a time. 

Given the legal requirement for vehicle safety inspections, this becomes the primary enforcement mechanism.

Change of ownership triggers a requirement to report the odometer reading at that point, so that the previous owner can be invoiced for the final amount, and the subsequent one has the account for the fee.

There are no telematics based options in Iceland at present, although it appears likely that there will be a strong case for enabling this for trucks with trailers at least, to reduce compliance costs.

How often must you pay?

Vehicle owners are required to pay monthly (with 14 days to pay after each invoice). The choice being whether to send an odometer reading so that it is actual distance driven, or to have an estimate calculated. Estimates will be based on previous readings, or if not available, but the average reading by vehicle type calculated by the Directorate of Internal Revenue (which for cars is 40km per day). 

How much are vehicles being charged?

The rate structure is based on registered vehicle weight as follow (US$ are rounded estimates based on today's conversion from Icelandic Krona.

Vehicle class/weight	ISK per kilometre	US$ per kilometre
Motorcycle/moped	4.15	0.034
0 – 3.5 tonnes	6.95	0.057
3.5 – 5 tonnes	9.85	0.08
5 – 6 tonnes	10.44	0.086
6 – 7 tonnes	11.06	0.09
7 – 8 tonnes	11.73	0.096
8 – 9 tonnes	12.43	0.102
9 – 10 tonnes	13.18	0.108
10 – 11 tonnes	13.98	0.115
11 – 12 tonnes	14.81	0.124
12 – 13 tonnes	16.29	0.134
13 – 14 tonnes	17.92	0.147
14 – 15 tonnes	19.71	0.162
15 – 16 tonnes	21.68	0.178
16 – 17 tonnes	23.86	0.197
17 – 18 tonnes	26.25	0.215
18 – 19 tonnes	27.37	0.224
19 – 20 tonnes	28.55	0.234
20 – 21 tonnes	29.77	0.244
21 – 22 tonnes	31.06	0.255
22 – 23 tonnes	32.40	0.266
23 – 24 tonnes	33.79	0.277
24 – 25 tonnes	35.24	0.289
25 – 26 tonnes	36.75	0.301
26 – 27 tonnes	38.04	0.312
27 – 28 tonnes	39.36	0.323
28 – 29 tonnes	40.74	0.334
29 – 30 tonnes	42.17	0.346
30 – 31 tonnes	43.65	0.358
Over 31 tonnes	45.17	0.37

Buses get a 10-30% discount for the first three years, and electric, hydrogen, methanol and methane powered heavy vehicles get an 80% discount for the next five years. 

Trailers with registered weights over 10 tonnes face similar fees as powered vehicles do in the above table.  Trailers are not required to be fitted with hubodometers (as in New Zealand), but those that do not have the fees added to the powered unit, with an independent recording needed to be made by the owner of that unit for distance travelled with trailers (it seems likely that this could be a compliance issue). 

Exemptions

Three categories of vehicles are exempt:

- Vehicles for use by rescue teams

- Vehicles registered no later than 1 January 1965 or earlier if demonstrated that the vehicle has no odometer and cannot be equipped with one

 - Vehicles owned by foreign embassies and diplomats.

Fuel tax?

On 1 January 2026, fuel tax was abolished in Iceland, resulting in a reduction in the price of petrol and diesel by around US$0.656-0.738 per litre on average (with some petrol dropping by around US$0.78 per litre).  This is a reduction of around 30% in the price of petrol and diesel overall.

Revenue from the new system is expected to be akin to that from fuel tax, being around ISK22 billion (US$180 million) per annum.

Lessons to draw?

It is possible to rollout a simple odometer based RUC system, with easy means to report distance travelled using apps as long as it is backed up by a regular vehicle inspection system that provides solid evidence of distance travelled from each vehicle.  Together, it means that there is a backup that reduces the risk of fraud.

Invoicing vehicle owners monthly, either by actual or estimated distance travelled means RUC can be seen as more of a utility bill, than a toll or an irregular tax.

Having the option of estimated bills helps to lower the burden for those who don't want to report distance regularly, but also incentivises vehicle owners to report distance to get exact invoices.

Starting with a smaller proportion of the fleet (EVs/PHEVs) reduces risks of any system, because it can provide a bedding in of the business rules and processes with a smaller number of customers (and in particular, ones more likely to be compliant).

Abolishing fuel tax at the same time as rolling out RUC for all vehicles, helps build public acceptance and trust that RUC exists to replace fuel tax, but it is unclear how easy it would be to introduce RUC for all vehicles in one step, if the vehicle fleet were significantly larger.

Having a RUC rates table based on weight classes is likely to better reflect the different levels of wear and tear on the network based on weight, noting that fixed costs don't vary by vehicle weight.  However, I question whether one tonne increments are necessary from 5 tonnes upwards, rather than wider bands to reflect averages.

Sure, Iceland has a small population, with many concentrated in one city, and it has little cross border travel  (so there is no need for any sophisticated means to distinguish distance travelled outside the country or to tax visitors' vehicles, as this happens infrequently), but it has the foundations of a functional, efficient system to collect revenue and send reasonable price signals as to paying for the costs of providing road infrastructure.  

There was some opposition to the tax, mainly from vehicle retailers concerned the tax would suppress EV sales, which it appears to have initially done, but there remains significant savings from owning an EV compared to a petrol vehicle, based on operating costs. 

It's early days to determine how much non-compliance there is, which will be important to watch. In particular, whether it affects vehicle registration compliance or if residents of rural areas may be less compliant.  

One thing to note is Iceland largely did all of this without a pilot, and without an extended period of detailed design and testing.  Iceland had a small amount of help in the early days, but between showing interest in RUC and putting all vehicles on it, has been a period of under five years.  The contrast with pretty much any other jurisdiction is astonishing, and perhaps demonstrates a clarity of policy objectives and assessment of options that other jurisdictions could do well to emulate.

California's Road Charge - A study in policy paralysis

Forbes Magazine recently published an article headlined "California Mileage Tax—Pilot Programs And Permanent Policy Inertia" by Andrew Leahey. It noted that California has been studying road user charging (which it calls Road Charge for a reason that is banal and barely worth noting) for nearly 10 years and there is next to no indication that the state will be implementing distance based road user charging soon. 

This is despite nearly hysterical media coverage in recent weeks because of legislation that will essentially continue the status quo for another decade.  This is adequately answered by this article in The Californian, but it is fairly damning of the California Road Charge program that this sort of coverage repeats.  

The idea that it would be "extremely intrusive" to implement RUC is highly misleading. The idea that it is "inequitable" to charge according to how much distance is travelled, is extraordinarily simplistic (after all, what does the gas tax do?), the idea that rural locations will suffer the most was refuted by research undertaken by RUC America years ago. What is unfortunate is that so much work has gone into pilots and studies in the state, but poor knowledge about the concept remains.

California has run pilots which have demonstrated success and generated plenty of useful data. The first pilot was one I worked on, which had over 5,000 participants, testing a range of mileage measurement and reporting options, and considering what the public response was to it.  Since then California has run further pilots and studies, all examining more detailed elements of how "Road Charge" might be implemented, but there is no political mandate to actually introduce it.

In short, while many politicians and public servants know that California will have to introduce a means to charge electric (and hybrid and more fuel efficient vehicles) to use the roads, and it almost certainly will involve charging by distance, the actual political courage to advance it to implementation isn't there. As a result, there is a willingness to keep a program of investigating road user charging going, in perpetuity, until the time comes.

In the period California has been studying road user charging, Hawai'i has piloted and implemented an actual revenue raising program (as of last year), albeit it is currently an option for EV owners instead of paying a flat annual fee.  Likewise Virginia has implemented a revenue raising program, as has Utah (Oregon was already operational in 2015).  Iceland has gone from investigating to rolling out road user charging for ALL vehicles on all roads as of the past month.

Meanwhile, 4.3% of light duty vehicles in California are EVs, 5.4% are hybrids, 1.3% PHEVs (Source). That's around 34% of all light duty EVs in the United States.

There are no great technical issues hindering the introduction of Road Charge in California, but rather political ones, which seem astonishing in a state where the Democrats have 75% of the seats in the State Assembly and State Senate, as well as the Governorship of the state.  

California's Road Usage Charge Technical Advisory Committee was set up by legislation in 2014 and a Bill before the State Assembly will extend it till 2035.

Leahey's article states:

What is really being tested is not a system, or the finances, or even the equity. What is being tested is political tolerance. The pilot is determining how long the state can talk about a road usage charge, create advisory boards, and extend pilot frameworks without triggering significant backlash or having to actually legislate the hard decision.

In other words, California will watch other US states implement road charging, and at some point there is hope that it will be just a formality, because few politicians are willing to stake any political capital on the outrageous idea that... the use of all cars, regardless of energy source, should be charged to pay for the costs of maintaining and renewing the road network.

Of course California has taken another approach, which has been to raise the state's gas tax.  It was increased by US$0.12 per gallon (US$0.0317/litre) in November 2017 and again by US$0.056 per gallon (US$0.015/litre) in July 2019.  Since then, legislation has mandated an inflation adjustment to the gas tax every year from 2020, meaning it is now US$0.612/gallon (~US$0.162/litre).

This is the highest state gas tax in the USA, so in effect California has been incentivising a shift towards more fuel efficient, hybrid and electric vehicles by taxing gasoline powered vehicles more.

There is a flat fee on EVs of US$175 per annum, but this is lower than the average gas tax paid per annum for a gasoline car.  The effect is that around 11% of car users in California are paying less to use the roads than others.

Is that the worst outcome? Probably not, although it costs California taxpayers the resources to keep officials occupied, and pay for consultants to update information. It is entirely plausible by the time California gets to actually implement Road Charge, that there are fair questions to be asked about data collected in 2017 and its relevance. Certainly there is some ongoing technological and cost evolution in that time.

Meanwhile, I can only hope that any future narrative about road user charging in California isn't about it being a "new tax" but a replacement, to level up what vehicles are charged to use the network.

(oh, and the reason why it's called "Road Charge" and not a "road usage charge" or "road user charge", is because it was thought that the acronym RUC rhymed with a rude word.  I had no idea such a word was so blasphemous in the state of California!)