NSW Parliament publishes report into forthcoming road user charge for electric vehicles

New South Wales (NSW) looks set to be the next jurisdiction to implement a distance-based road user charge (RUC) on electric and plug-in hybrid light vehicles, from 1 July 2027.  From that date, EV owners will be subject to a charge of A$0.03095/km (US$0.0347/mile) and PHEVs A$0.02476 per km (US$0.0278/mile). It won't be the first in Australia to do so, as the state of Victoria implemented RUC on EVs and PHEVs in 2021, but this was cancelled in 2023.

The Parliament of NSW has now published a report into the forthcoming RUC.

Background

In Australia, RUC is a complex topic. For years the Commonwealth (Federal) Government studied and even piloted distance/weight based RUC for heavy vehicles, largely because multiple reports indicated that there would be economic productivity benefits from introducing it, alongside a wide range of associated funding and charging policy measures.  In the meantime, heavy vehicles pay registration fees to the States and Territories, at unified rates, and when paying fuel excise duty on diesel, they can claim a 100% refund for diesel not used on public roads and a partial refund of the remainder (with the part that is retained called the "fuel based road user charge"). Since 2024, heavy vehicle RUC has largely been off the political agenda in Australia. 

Then came electric vehicles (EVs), in sufficient numbers that it started to be a concern for future fuel excise duty revenues. Fuel duty is a Commonwealth tax (the States and Territories are not constitutionally permitted to levy such a tax), but is not hypothecated. States and Territories started being interested in whether they could charge a RUC for light EVs, so Victoria did so in 2021, only for a court case to go as far as the High Court of Australia, which struck it out as unconstitutional in 2023.  That court case was supported (but not led) by the Commonwealth Government. I wrote about the decision (known as Vanderstock) at the time, as I agree with the dissenting opinions of the court.  It was quite the stretch of interpretation to treat the Victorian RUC as an "excise tax" that influences the supply of electric vehicles (and therefore only within the Constitutional scope of the Commonwealth Government), but the decision stands.  

However, parallel to Victoria, the NSW Government passed the Electric Vehicles (Revenue Arrangements) Act 2021, with nearly identical language to the legislation used in Victoria.

That Act means that from 1 July 2027, EVs in NSW will be subject to a distance based RUC.

The obvious conflict is that the Vanderstock decision essentially indicated that RUC should be implemented nationally by the Commonwealth Government, not by the states. but since the decision there has been relatively little said at the Commonwealth level about RUC. 

A series of statements have been made by a few Ministers ranging from how important it is to charge EVs for road use eventually, to concern that legislation to enable this might not get passed by the Senate. 

While there has been some work behind the scenes undertaken by officials, no decisions have yet been made. Meanwhile, sales of EVs in Australia (as in many countries) are at a record high. In the year to August 2026. 18.5% of new light vehicle sales in Australia have been EVs, with it being over 26% in the month of August alone. 

NSW's legislation has not been amended or repealed (although the election in 2023 saw a change in State Government from the Liberal/National Coalition to Labor). 

Public Accountability and Works Committee

Earlier this year, the NSW Legislative Council delegated to its Public Accountability and Works Committee a review into the operation of the Act, and in particular:

(a) whether the policy objectives of the Act remain valid, and

(b) whether the terms of the Act remain appropriate for securing those objectives. 

It undertook its inquiry and has now published its report and recommendations.  Most of the ten recommendations should not be a particular problem to implement. Two of them are not good ideas, but not impossible to implement.

The NSW Government needs to respond to the report by January 2027, which gives essentially no time to amend the legislation, especially since on 13 March 2027, there is a state election. 

Report details

I’ve read more than a few reports from elected committees about various forms of road user charging and road pricing over the years, and I’m glad to say this is one of the better ones. By and large, most of the conclusions drawn are at least practical, and have some rational public policy basis for them, although a handful of them are not. 

The report is overall positive and supportive of the implementation of RUC for EVs in NSW, notwithstanding some concerns.  

Issues considered in the report include:

• Implications of the Vanderstock High Court of Australia decision on the legislation, including possible amendments to distinguish the NSW proposal from the Victorian policy
• Effects on EV sales
• Impacts of distance based RUC on different geographical communities and vehicle operators including rideshare, delivery drivers and dealerships
• Impacts on plug-in hybrid drivers
• Merits of pure distance based RUC vs including weight, fuel efficiency and congestion
• Hypothecation of net revenues
• National RUC for EVs vs. states going first
• Administration of a RUC

I won't summarise the whole 88 page report here, but it is worth a read (PDF). 

The concerns expressed are understandable and not unreasonable. It is worth noting that the Committee was chaired by a Green MLC (Member of Legislative Council), with the deputy chair from the Liberal Party.  Besides them, there were three Labor, one National and one independent (Mark Latham) on the Committee. Only Latham made a dissenting statement, and that was to support weight based vehicle registration for EVs as an alternative.

A key recommendation was to proceed, regardless of progress at the federal level, which I believe is sound, albeit risky.

At the very least, it is clear that States and Territories could wait for a national RUC system and still be waiting one, two, three or even five years from now, mainly because the political will to proceed is tepid at best. That may be proved wrong in the coming months, but it is more likely than not that NSW pushing on with RUC will catalyse action from the Commonwealth Government which is more rapid than simply waiting for something that shows few signs of progressing fast.

I have summarised the recommendations below with comments in italics.

Recommendations

Recommendation 1

That the NSW Government ensure that any future road user charge for electric vehicles is designed and operationalised in a way that does not dampen or impede the uptake of electric vehicles in New South Wales.

Understandable, and easy to address. The basis for this was evidence that RUC when introduced in Victoria and applied to EVs in New Zealand, had no apparent impact on sales. Evidence in New Zealand is blurred by the removal of a major subsidy scheme that saw levies on some new cars used to subsidise the sales price of low emission ones.  That brought forward EV sales, and meant that when RUC was applied to EVs in mid 2024, there was no effect on sales. There remains scant evidence that charging a few cents per kilometre for road use deters a purchase of an EV compared to a ICE vehicle that is already charged the same or more through fuel tax.

Key to complying with this recommendation is perhaps two elements:

• Ensuring administration and compliance for RUC for EVs is simple with minimal friction for owners. It should be easy to buy, have distance reported and be compliant, without prospective EV owners fearing not being able to understand or being fined inadvertently for getting it wrong.  There are plenty of models for doing this  - see New Zealand, Hawai'i and Oregon.
• Setting a rate for RUC, for now, that is cheaper than fuel excise.  A rate commensurate to around half of the average paid by a light ICE vehicle may be appropriate, not least because it would around the same for a battery-electric hybrid vehicle.  The proposed A$0.0395/km seems like it would do that. 

Recommendation 2

That the NSW Government, in consultation with industry stakeholders, monitor the implementation of any future road user charge for electric vehicles in New South Wales with a view to:

• assessing any impact on electric vehicle uptake, and

• promptly identifying other unintended consequences that would undermine the strategic transition to electric and low emissions vehicles.

Agree. There is considerable merit in undertaking impact monitoring, perhaps for the first two years, of RUC on sales and any unintended consequences on users.  Related to this is having flexibility to make regulatory changes at short notice to address any of these, and to take lessons from other jurisdictions about what to avoid (e.g. avoid over-complicating the passage of liability of RUC on vehicle sale or vehicle scrappage).

Recommendation 3

That the NSW Government consider an electric vehicle road user charge exemption for registered dealers of new 'in scope' low and zero emissions vehicles, to be applied up to a prescribed number of kilometres travelled on demonstrator models, and that the threshold be determined in consultation with industry stakeholders.

Disagree.  The objective of this appears linked to Recommendation 1, but this is not a good idea. The best time to educate vehicle owners about RUC is when they purchase a vehicle new.  This appears to be a call for a subsidy for new EVs, when similar exemptions don't exist for fuel duty or even tolls.  It is likely to mean "demonstrator models" get used more by proprietors and staff of dealerships, and then when sold it is a transfer from taxpayers to buyers of those vehicles. 

No other jurisdiction does this (noting Victoria had such a provision). In New Zealand, dealerships buy a block of RUC distance in advance and it is effectively included in the sales price. There is no great burden in having newly registered vehicles including a prepaid block of RUC kilometres, which is essentially like fuelling the vehicle. By contrast, in Oregon the initial OReGO program did not make provision for dealerships to offer RUC to vehicle owners, so they needed to be followed up around a year later to get enrolled with RUC or pay a higher annual registration fee. This is now being amended.

Recommendation 4

That the NSW Government consider hypothecating the future revenue collected under the Electric Vehicles (Revenue Arrangements) Act 2021 towards road maintenance and infrastructure.

Agree. This will help differentiate the RUC from the Victorian programme, but also allow for charges to be more closely linked to what is spent on the network, treating roads as a network utility. This could be done notionally, matching the net revenue collected to a specific allocation of funds for roads maintenance, or more formally (which would progressively grow in scale as RUC expands).  Treasuries hate hypothecation because they want maximum flexibility over the use of tax revenue, but if NSW's RUC is to be treated not as a tax, but as a user fee, it should have a relationship to what is spent on the network.  Furthermore, it is more likely to obtain public acceptability, if it is not treated as just another new source of revenue.  I'll note that the now virtually stalled Heavy Vehicle Road Reform programme includes hypothecation for a future national heavy vehicle RUC.

Recommendation 5

That the NSW Government investigate fairer distance-based options for electric vehicle road users in rural, regional and outer suburban communities and light commercial vehicle operators without creating loopholes or adding to the administrative burden or complexity for drivers.

Agree, pending clarification of the problem.  The report assumes that people living in rural, regional and outer suburban communities drive more distance in aggregate on average, than those in inner city communities. There is no evidence provided to support this. I'll note that in the United States, RUC America undertook a study comparing the impacts of introducing distance-based RUC to replace fuel excise for people in urban vs. rural locations and it was published in 2022. It concluded that in many cases people in rural areas did NOT drive greater distances, because they drove less frequently than residents in urban areas. Similar research in NSW would be informative and useful.

Some of the commentary in the report around delivery and gig worker drivers seems to ignore that such drivers face these fees now with ICE vehicles, paying fuel duty for driving more.  Research might indicate that delivery drivers pay more in fuel duty per kilometre driven than the average, because of the amount of starting and stopping compared to private vehicle trips. It seems particularly questionable to want to cap what is charged for such vehicles, when EVs are likely to deliver considerable savings in energy costs already.

Notwithstanding this, there is merit in enabling the registration and certification of third-party service providers to collect RUC using telematics systems either as equipment already installed in vehicles or third-party devices, to measure distance by location. This would enable exemption of distance travelled off public roads and out of state, and for measurement to be automated.  This could provide options for rural drivers and drivers located in border communities to avoid paying for travel in adjacent States and Territories. Note that Vermont has agreed to implement RUC for EVs, but requiring such an option be implemented two years later.

Recommendation 6

That the NSW Government amend the Electric Vehicles (Revenue Arrangements) Act 2021 to reframe the road user charge to have the character of a licence fee or fee for service, rather than a tax or excise.

Agree, noting that the timing to do this seems challenging at best. It should be a user fee for the use of public roads in New South Wales, and it could include a means to grant refunds for distance off of public roads or in other states, if evidence is given of proof of such travel. This could only be done after the event, and have an administrative cost to it.

Recommendation 7

That the NSW Government amend the Electric Vehicles (Revenue Arrangements) Act 2021, or use future regulations or any other appropriate mechanism, to introduce a differentiated distance-based regime in which the per kilometre rate takes into account:

• a vehicle's size and weight

• differences in battery performance and life for battery electric vehicles

• differences in emissions performance among low-emissions hybrid vehicles.

Disagree. This appears to be based on a misperception as to wear and tear on road surfaces generated by variations in weight among light vehicles. This is not supported by research commissioned by the National Transport Commission or seen overseas. Beyond the impacts of weather, there is very little impact of vehicle weight on road maintenance below the level of heavy vehicles (GVM >4.5 tonnes).  Note New Zealand did use to charge light vehicles at one tonne intervals, with the rates varying by a tenth of a cent per kilometre. One tonne increments were scrapped for light vehicles some years ago to simplify administration.

The proposal to charge differently according to battery performance and life are highly problematic not least because such data is not collected in the motor vehicle register. It would be difficult to measure this and unclear the basis for varying charges, particularly as performance and battery life varies over time.  The proposal to take into account emissions performance among hybrid vehicles (which in this case would be plug-in hybrids) also has problems around getting a reliable source of data to classify vehicles, and to incorporate it into the motor vehicle register.  It is common to charge vehicles differently by Euro class, in heavy vehicle RUC systems in Europe, but that is for vehicles almost all of which are powered by diesel.

The relative impacts and merits of such proposals seem likely to be not worth the cost and complexity to implement.

Recommendation 8

That, with respect to the administrative arrangements to operationalise any future road user charge, the NSW Government commit to:

• keeping it as simple as possible for drivers to minimise the administrative burden

• fully integrating the charge within the existing administrative scheme for vehicle stamp duty, registration fees and licensing.

Agree. There should be a base level simple product for vehicle owners to interact with, such as a prepaid licence (as in New Zealand), an annual fee based on an estimate confirmed at registration time, or a regular invoice based on an average or submitted distance. It makes perfect sense to integrated with registration fees, but there needs to be a rapid commitment to the base level product that provides the most flexibility to users, while enabling alternatives either immediately or within a couple of years.

Recommendation 9

That the NSW Government continue to work with the Federal and state governments on road user charging policy, with a view to working towards a national road user charging system.

Agree, it should go without saying that a national system or nationally co-ordinated system is preferable to a patchwork of policies that risk incoherence.

Recommendation 10

That, absent a national road user charging framework and regime, the NSW Government proceed to implement the electric vehicle road user charge established by the Electric Vehicles (Revenue Arrangements) Act 2021 subject to the amendments outlined in Recommendations 1 to 8 above.

Agree.

Next steps

The NSW Government is expected to provide the Government Response to this report by 11 January 2027.  This should give a clear indication of what happens next.

In the meantime, it is not impossible to expect that there might be an announcement from the Federal government in Canberra about RUC policy nationally (although few would bet on it). The Mid-Year Economic and Fiscal Outlook is due to be issued in December 2026, which would cut it fine indeed, but be timely to signal what might happen nationally.  However, it is also quite likely that nothing will be signalled, given other government priorities.

Vermont will be the next US state to implement RUC

Following in the footsteps of Oregon, Utah, Virginia and Hawai'i, Vermont has passed legislation implementing a distance based road user charge (PDF) (called a Mileage Based User Fee - MBUF) from 1 January 2027.  This of course makes Vermont the sixth US state to introduce a road usage charge for light electric vehicles.

It will apply to battery-electric vehicles registered in Vermont (so not vehicles visiting from other states) charging US$0.014 per mile (US$0.0087/km). The maximum payable within a 12 month period is US$178 which is around 12714 miles (a relatively high cap).  

All US states that have implemented RUC for light vehicles have implemented a cap, unlike jurisdictions in Europe and New Zealand (and unlike fuel tax!).

Vermont MBUF will be measured using odometer readings, initially. With options to pay:

• Annually, following one odometer reading (e.g., at safety inspections); 
• On a regular basis (at an interval determined by the Commissioner of Motor Vehicles) known as "pay as you go"; or
• Flat fee at the level of the cap (US$178).

Part of the programme includes a transition plan to expand beyond battery electric vehicles.

It will be expanded to PHEVs from 1 January 2029 with work to be undertaken on "additional mileage reporting options" specifically referring to location based options so that distance travelled outside Vermont could be excluded.  Indeed, the legislation indicates that there should be at least one option for motorists to distinguish between distance travelled in state and out of state when it is extended to PHEVs. 

Inclusion of PHEVs is also dependent on developing a fuel tax credit system to refund fuel taxes, based on the vehicle's fuel economy. It is unclear if this simply allows for estimations of fuel consumption or actual fuel consumption.

Furthermore, the transition plan will also investigate expanding coverage to medium and heavy duty EVs and PHEVs, although no date has been set for such a transition or decision made to actually expand beyond light EVs and PHEVs.

Earlier discussion in Vermont's legislature considered MBUF applying to all vehicles, so it is clear that there is a path by which EVs and then PHEVs are paying by distance, with future application to heavier vehicles of the same motive power and then applied to other vehicles.

What is notable for Vermont is:

• No RUC pilot was run in Vermont, rather this has followed a feasibility study and the operation of an advisory committee.
• Explicit inclusion of a location enabled option for the next phase, indicating the importance of addressing vehicle owners not being charged for out-of-state distance.

There will be clearly be more forthcoming about this in future months, as the rollout date is short, but at least at first it will be a relatively simple low-cost system.

Challenges will be:

• Not charging out-of-state vehicles to use the roads (such vehicles pay fuel tax when filling in Vermont now, but won't be included, largely because of political reluctance and legal complexities in identifying and enforcing such systems for out-of-state light vehicles (note than Oregon's Weight-Mile Tax applies to trucks regardless of the state where they are registered, for driving on public roads in Oregon.
• Selecting a suitable location based system for PHEVs (which could presumably also apply to EVs).
• Obtaining public acceptability for the final approach to credit fuel taxes to PHEV owners (noting Oregon has been doing this for some time).

Does road user charging deter electric vehicle sales?

 

On 20 May 2026 I had the privilege of presenting a seminar at the University of Sydney, Institute of Transport and Logistics Studies,  on the topic of "Road user Charging in Australia: Finally, after 20 years?".

One small piece of research I pulled together when preparing the seminar was to look at reported quarterly sales data for EVs (pure EVs, not hybrids) as a proportion of all new light vehicle sales, for New Zealand, Australia and Iceland. 

The reason being fairly simple. It is to identify any discernible impact on EV sales of the presence or absence of a distance based road user charge (RUC).

New Zealand introduced RUC for EVs on 1 April 2024.

Australia has no RUC for EVs.

Iceland had introduced RUC for EVs on 1 January 2024 and expanded it to all vehicles on 1 January 2026.

New Zealand's RUC rate for light EVs is the same rate for light diesel vehicles, and broadly equivalent to petrol tax.  That rate is NZ$0.076/km including GST of 15%.  Excluding GST this would be US$0.038/km or US$0.06 per mile.

Iceland's RUC rate for light EVs is ISK6.95 per km or around US$0.06 per km or US$0.1 per mile.

The result is fairly clear. There is no significant relationship between the introduction of RUC and EV sales.

Nine months after Iceland introduced RUC on EVs, sales grew and have continued to grow as a proportion of new light vehicle sales.  

In New Zealand there was no drop at all, although sales remained slow and only picked up recently, this is mainly attributable to poor economic growth and the after-effects of the removal of a major subsidy to buy EVs that was scrapped at the end of 2023 (bringing many sales forward before that time). 

Meanwhile, Australia, which has no RUC at all, has only slightly higher EV sales than New Zealand (although Australia has lower fuel tax, and higher incomes).

The oft-cited claim, seen in Australia, the UK and the US, is that requiring EV owners to pay to use the roads would deter their sales, relative to non-EVs, is largely specious. While lobbyists in those jurisdiction get political and media attention for their claims, the reality - in jurisdictions that actually have introduced mandatory RUC for EVs, is that it makes next to no difference.

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!)

UK to implement road user charging for EVs and Plug-in Hybrids - called eVED

As was widely forecast, the UK's Chancellor of the Exchequer, the Right Honourable Rachel Reeves, announced in the 2025 Budget that the UK will be consulting on introducing a distance-based road user charge (RUC) called, confusingly (and of course deliberately) the electric Vehicle Excise Duty (eVED).

This is distinct from Vehicle Excise Duty (VED) which is essentially equivalent to annual vehicle registration fees seen in most countries worldwide.  Both electric vehicles (EVs) and plug in hybrid electric vehicles (PHEVs) have been subject to VED in the UK since April 2025 after many years of exemptions, although the rates for the initial registration of such vehicles are lower than for petrol and diesel vehicles (£10 (US$13.23) in the first year for EV/PHEVs, £110 to £5490 (US$146 - US$7262) depending on the CO2 emissions rating).  In the second and subsequent years, most cars are on the same rate for VED.  The concessionary rate for VED for EV/PHEVs is currently due to expire in 2030. 

VED raises £8.4b (US$11.11b) per annum, and used to be hypothecated to the National Roads Fund, which funds National Highways - the Crown company responsible for England's strategic road network (national highways!). This hypothecation was abolished in 2025.

However, eVED is not like the annual registration fee, in that it is not a fixed tax. The only parallel is that it will be collected at the same time as the registration fee (which is an echo of Hawaii's HiRUC programme which collects HiRUC at the same time as the annual vehicle registration). 

eVED is a distance-based RUC, presumably called so because in the UK, the term RUC was used to legally describe any congestion charging type scheme.  

(The one commonality around road pricing/RUC is that it appears to be absolutely impossible for many jurisdictions to use the same terminology to name the same concept)

eVED is proposed to apply from April 2028 and the consultation document on the proposal is here.

In one sense this is a huge leap forward. The UK has spent over 20 years with on and off debates about some form of national distance based road charging, and has mostly been focused on highly sophisticated distance, time and location based pricing (at once time known as TDP (time distance place) pricing). However, as much as academics, bureaucrats and technocrats have advanced how and why this should be done, they have proven completely incapable of developing a policy package and communicating such a package to the public, to make it acceptable.

eVED, by only charging EVs and PHEVs, and only being based on distance is a much simpler proposition, and might just happen.

Why?

Fuel tax revenue loss, pure and simple. Also, as EVs pay nothing to use the roads, they are likely to generate more demand for distance travelled than other vehicles, contributing more to congestion. 

Fuel tax raised £24.4b (US$32.3b) per annum for the UK Treasury in 2024. Noting none of it is hypothecated, unlike in the US. The average petrol or diesel car owner pays around £0.06 per mile (US$0.079 per mile or US$0.127 per km) per vehicle.  This equals about £480 (US$635) per year to use the roads in the UK.  Of course this is just an average, but is an indication of a point to compare to EVs and PHEVs.

Fuel duty revenue is forecast to halve by the mid 2030s.  Curiously the discussion paper depicts this as a loss of funding for 265 million General Practice doctor appointments (as the UK charges nothing for such appointments, for all residents, regardless of income, under its National Health Service), because fuel duty is not linked to any spending.  This is seen as perhaps more politically significant than funding for road maintenance (which is far exceeded by the income from fuel duty).

In short, eVED is to try to make up for this revenue loss for cars.

EV vehicle sales

Treasury reports that around a quarter of new car sales in October 2024 were EVs. The UK Government's policy is to ban sales of conventional ICE cars in 2030 with a further ban on sales of hybrid and PHEVs by 2035 for light vehicles altogether. 

How much will it be?

For pure EVs, £0.03 per mile (US$0.04 per mile or US$0.064 per km). Around half the average paid in fuel duty by petrol or diesel cars. Of course at that rate it only recovers half of what fuel duty currently does, which is in part a way to continue encouraging use of EVs relative to petrol and diesel cars.  It will be increased according to inflation annually. 

PHEVs will be charged at half that rate, at £0.015 per mile (US$0.02 per mile or US$0.032 per km). This is based on nothing more than a political call on what the rate should be, not any reflection of relative payment of fuel duty compared to pure electric use. 

How will it work?

eVED will be an addition to VED, and be paid annually.  Vehicle owners will be asked to estimate their annual mileage and pay either that whole amount upfront or in instalments throughout the year.  The actual mileage will be checked with the annual safety inspection (which only occurs when a car becomes three years old).  For the first two years of a car's life, the odometer will apparently need to be checked for the annual registration. This will be another inspection, which it is hoped can simply be combined with vehicle annual servicing (which most owners of new vehicles undertake regardless). 

Systems will need to be put in place so authorised MOT (safety inspection) garages can collect and pass on mileage data to the Driver and Vehicles Licensing Authority (DVLA). 

At the mileage inspection, if the estimate of the year's mileage is too high, then there will be a credit for the mileage for the following year. If it was too low, then there will be more to pay either in a lump sum or in higher instalments for the year ahead. 

When sold, any prepaid mileage will stay with the vehicle, and be visible to any new owners (so it can be factored into the price).

What about foreign vehicles in the UK?

They won't be subject to eVED, until they become subject to VED (which is when they remain in the UK for at least six months).  This will be quite an issue in Northern Ireland with its open border to the Irish Republic.

What about mileage driven outside the UK?

Tough. All mileage counts. The view is that there is no refund for fuel duty used in vehicles driven overseas, so the same applies here. Of course nobody pays fuel duty for an entire year, and few even pay as infrequently as monthly, so it isn't quite the same.

Is it just about odometers?

Yes, for now, but the consultation seeks advice on how OEM (Original Equipment Manufacturer) telematics might be used voluntarily to automatically report mileage.  The consultation is silent on whether it might be used to exempt mileage driven overseas.  

The consultation notes that 2.3% of vehicles have had their odometers tampered with to lower their readings. It is unclear whether this figure is applicable to EVs and PHEVs as much as other vehicles.

What's the money to be used for?

The consultation doesn't say, although there are references to contributing towards the "wear and tear on the roads" caused by cars (which is negligible). It seems likely to be treated as general Crown revenue, and not be hypothecated. This won't help public acceptability or indicate any actual link to what vehicles should pay based on a fair allocation of infrastructure costs to those vehicles (but that has never been the case for fuel duty either). 

What's next?

The scheme is not meant to start until April 2028, so the consultation responses will be the first check on the public mood for the proposal. There has already been some backlash, but that may be as much about the unpopularity of some general Budget measures around income tax as this measure. 

There are plenty of questions beyond those in the consultation document. The scalability of this proposal beyond EVs and PHEVs being one of them, especially to heavy vehicles.  I'll have to more to write about it in due course.

Switzerland consulting on RUC for electric vehicles

Switzerland has the longest record of any European country with distance based road user charging, being the first to introduce it (for heavy vehicles (GVW over 3.5 tonnes)) in 2001 with its LSVA system.  The LSVA charges virtually all heavy vehicles by distance and weight class across all public roads in Switzerland (and Liechtenstein), although the first generation system used the tachograph as the primary measurement of distance, it used one of the first GPS On Board Units (OBUs) to support that measurement, including detecting where vehicles entered and exited the country.  It is worth noting the LSVA is mandatory not only for Swiss registered heavy vehicles, but visiting heavy vehicles (with a manual odometer reading on entry and exit at the border for those not equipped with GPS approved OBUs, and a lump sum option for some classes of heavy vehicles).

Light vehicles were not subject to such a charge, but the vignette for use of the the motorway network applies to them (CHF40 per annum (~US$50), along with fuel taxes and registration fees as in most jurisdictions. This looks likely to change in the coming years for the same reasons as many other jurisdictions have been considering road user charges (RUC) - the inability of fuel tax as a way of charging for road use by electric vehicles (EVs).

Switzerland's Federal Council announced at the end of September that it is consulting on options to tax EVs, with the intention that it commence in 2030.

If successful, it is possible Switzerland could be the first mainland European country to introduce a light vehicle distance based RUC (given Iceland already has one).

Background

The press release from the Federal Council states that the Federal road infrastructure is 100% user pays, with the "mineral oil tax" being the main source of revenue for it.  It pays into the National Road and Agglomeration Transport Fund and the Special Financing for Road Transport Fund with half of the fuel tax revenue also being general revenue to the Federal Treasury. 

Tax on petrol is at CHF 0.7312 per litre (US$0.91)

Tax on diesel is at CHF 0.7587 per litre (US$0.94)

Any new tax on EVs would be expected to go to similar funds as the taxes on fuel. To implement such charges would require Constitutional Changes.

Options

The two options being considered are:

- Distance based RUC also based on vehicle weight (estimated to average at CHF 0.054 per km (US$0.067)

- Energy based tax on electricity used to charge EVs (estimated to average at CHF 0.228/kwh (US$0.028)

The proposed energy tax would apply to both public and private vehicle charging (which would raise questions about implementing and enforcing such a fee on vehicle charging at home).

Consultation

Documents on the consultation are available here (in German) and here (in French) and here (in Italian)

Consultation concludes on 9 January 2026.

Thoughts

I'm not a fan of levying the electricity used in EVs because it is fraught with the cost of implementing separate metering at homes primarily to recover a tax, and there remain issues around enforcement. It is also a highly inferior way of pricing road use, through a proxy tax, rather than one actually based around usage. Switzerland's long and successful operation of its LSVA system for heavy vehicles (which is not fuel specific) indicates it is possible to extend this to all vehicles, in an appropriate form.

Key to any distance charge when vehicles can cross borders is to provide an option to have distance measured by location, so this ought to be included but be optional.  How this is to be accomplished is worth exploring.

Likewise, only having such a fee for EVs, and not considering plug-in hybrids or battery electric hybrids would be a mistake, as those vehicles pay much less fuel tax, and it would be seem appropriate to ensure they are charged appropriately for using the roads. Ultimately it could apply to all vehicles in due course, but this is

UK likely to introduce road user charging for EVs and hybrids, and it doesn't resemble National Road Pricing

The Daily Telegraph, Financial Times and multiple other UK newspapers are reporting that the UK's Chancellor of the Exchequer, Rachel Reeves, will announce on 26 November 2025 that she is implementing a distance based road user charge (RUC) to apply to light electric vehicles (EVs), plug in hybrid vehicles (PHEVs) and battery electric hybrid vehicles (BEHVs) from 2028.

EVs will be charged £0.03 per mile (US$0.024 per kilometre), with "lower rates" for PHEVs and BEHVs, reflecting their use of taxed fuel.  It is noted that current estimates are that the average petrol car pays around £0.06 per mile (US$0.048 per kilometre) based on fuel consumption. So the proposed EV rate aims to charge half the price of petrol cars, to help reflect the lower environmental impact and retain an advantage for such vehicles.

Fuel duty (officially called hydrocarbon oil duty) is at £0.5295 per litre (US$0.69 per litre). This is well in excess of fuel taxation in North America and Australasia, but not out of step with some countries in Europe.

Why?

25.4% of new light vehicle sales in the UK in October 2025 were EVs, 13.3% are BEHVs and 12.1% are PHEVs.  So there is clearly an issue emerging of declining fuel duty revenue. 

Estimated revenue from the new charge will be £1.8b (US$2.35b) per annum by 2031. This compares to around £24.8 billion in 2024 from hydrocarbon oil duty.  In 2025/2026 alone it is estimated that around £300m (US$392m) is lost in hydrocarbon oil duty revenue from the growth in use of EV and hybrid vehicles. One estimate is that by 2029 that annual loss of revenue will be at £3.5b (US$4.6b) per annum, although later estimates are predicated on bans on sales of petrol and diesel light vehicles.

Note that hydrocarbon oil duty is not hypothecated for road or any form of spending. It is simply general tax revenue for Treasury. 

Secondary to revenue is fairness. Without some form of road user charge, those who cannot afford EVs or hybrid vehicles are paying more to use the roads and contribute to government spending than those who do not. 

How?

Articles so far indicate that the Driver and Vehicle Licensing Agency (DVLA), a branch of the Department for Transport (DfT) will be tasked with collecting the revenue, as it already collects the UK's annual vehicle registration fee (known as Vehicle Excise Duty - VED).  DVLA checks compliance through Automatic Number Plate Recognition (ANPR) cameras matching vehicles to its database as to who has paid VED. The same could be done with RUC. 

However, the details around implementation leave many unanswered questions. It is suggested vehicle owners will estimate future mileage driven and prepay for that distance, with credit given if overpaid. This suggests some form of independent recording of odometers, likely at annual vehicle safety ("MOT") checks, although these are not required for vehicles in the first three years of registration.  Options include sending photos of odometer readings or the use of telematics technology to report distance, but none of this is clear as of yet.

Reaction?

The Conservative opposition is opposing it, even though it is likely that it would have to do something similar, but given the Labour Government has been doing badly in opinion polls for many months, it is clear this policy is likely to generate plenty of heat from political parties keen to weaken the Government. However, the next UK election is not due until August 2029 at the latest, so theoretically this should not be such a major consideration for now. 

Hasn't the UK been here before?

Arguably yes. From the ill-fated Lorry Road User Charging project (which aimed to charge trucks by distance and vehicle class) replaced by the National Road Pricing project in 2005 which was shut down in 2007 due to public opposition. The differences between that project and this proposed charge are fairly stark though.

National Road Pricing aimed to reduce congestion by requiring all vehicles in the UK, regardless of fuel type, to be equipped with GNSS enabled on-board units, to measure distance varying by time of day and location, so that full network road pricing could be implemented. Although there were indications that some existing motoring taxes would be reduced, such as VED and hydrocarbon oil duty, there was vigorous public opposition. That opposition focused on how much people might pay, disbelief that existing taxes would be reduced by a reasonable amount, lack of belief that it would improve conditions for drivers and belief that money collected would be "wasted".  Around 2 million signatures were added to an online petition to 10 Downing Street to stop the project (and it was subsequently shelved).

A more simple distance and vehicle class based RUC would resemble that which already exists in Iceland, New Zealand and four US states.  Politically the question is how it might be sold to the public, as it is unlikely to matter too much that it is about raising revenue, but it may be to present it as ensuring drivers of EVs, PHEVs and BHEVs pay their "fair share" of the costs of maintaining the road network. 

Issues?

There are plenty. From how distance measurement will be verified and reported, especially in the first three years of a vehicle's life, to whether payments will be annual or can be spread throughout the year.  

Some other obvious questions:

• How will distance travelled outside the UK be treated (Northern Ireland may present particular challenges)?
• How will distance travelled by vehicles visiting the UK be treated?
• Will this only apply to light EVs and hybrids, and if so, what about heavy vehicles?
• Will motorists be able to pay in increments rather than annually?
• Will there be options for fleet operators to report distance more efficiently than is needed for private individuals?

Another question will be whether the revenue will be hypothecated to contribute to spending on road maintenance and renewal, which would give a long-term funding stream to support long-term commitments to the renewal of roads throughout the UK.  The UK Treasury is likely to oppose this, as it is philosophically opposed to any measures that reduce the flexibility of use of tax revenue, but the Department for Transport may take a different view, seeing the RUC as a user charge closer to a utility fee, so that it reflects a payment for the use of infrastructure (whereas hydrocarbon oil duty is simply a tax on fuel). 

What's next?

Details are to come. Key to this will be how these and other design and policy questions are answered, and how it is sold to the public. Is it just a new charge to cover off those types of vehicles, or is there an expectation that it may be expanded to other vehicles over time? (the latter would seem to be very risky politically, given the ineptness of politicians and the civil service in getting public acceptance for anything like this in the past). 

Maybe the big question is whether it is a first stage towards national road pricing? (it could be) Or is that going to be ruled out for now? Noting that this is going to apply across the UK, so what happens to the revenue in Wales, Scotland and Northern Ireland will be of interest to EV and hybrid vehicle owners in those countries.