Germany’s electric car boom cuts fuel tax revenue

“People are moving away from gasoline and diesel,” said Jens Boysen-Hogrefe, a tax and transportation expert at the Kiel Institute for the World Economy (IfW).

“The boom in electric cars triggered by high fuel prices is accelerating the transition in drive technologies that was already planned anyway,” he told DW.

According to the International Energy Agency (IEA), sales of electric vehicles in Europe rose by nearly 30% in the first quarter of this year compared to the same period last year.

Norway is leading the way, with electric cars accounting for as many as 95% of all newly registered passenger cars in the country.

The agency’s “Global EV Outlook 2026” reveals that EV growth rates in Asia-Pacific countries, excluding China, were even more remarkable, with sales in some regions rising by up to 80%. In Latin America, that figure was around 75%.

Fossil fuels remain a tax windfall

In Berlin, however, the boom in electric mobility has not been met with universal enthusiasm. That’s particularly the case at the Ministry of Finance, as charging an electric car does not incur energy taxes, but only minimal electricity taxes.

Currently, a liter of diesel in Germany is taxed at 47.04 cents, and a liter of gasoline at 65.45 cents. On top of that, there is a carbon levy and a 19% value-added tax.

With gasoline priced at €2.10 per liter, taxes account for €1.14 of the total, meaning more than half of the pump price goes to the government, according to the ADAC motoring club.

The current fossil-fuel-based system, with its energy taxes, truck tolls and CO2 tax, is very lucrative for the government, said Boysen-Hogrefe. “The finance minister doesn’t benefit much when people drive electric cars,” he noted. “Quite the opposite.”

Energy tax revenue in decline

“If the shift to electric cars takes place and nothing changes in the tax system, the road system will become a money-losing venture for the federal government,” the tax expert underscored, predicting billions of euros in losses.

According to the Federal Statistical Office, revenue from the energy tax on diesel and gasoline fell from €37 billion ($43 billion) in 2016 to €33 billion ($38 billion) last year.

In 2022, a report by the scientific advisory committee to the German Transport Ministry projected that revenue from the energy tax would drop to as low as €5 billion by 2050.

Pressure to reform road funding

“The transition to electric vehicles has fiscal implications that have hardly been discussed so far,” the report states. The expected tax shortfalls add to the costly subsidies for electric vehicles that are currently still necessary to drive the transition forward, it added.   

In Germany, government incentives to purchase electric cars — amounting to several thousand euros per vehicle — were scrapped at the end of 2023.

However, electric cars are still exempt from vehicle tax through 2035. And companies that invest in electric cars continue to enjoy tax benefits.

In their report, the transportation experts advised the government not to wait until the tax deficit becomes so large that it is forced to act.

That’s because “the lead time for such measures spans several legislative terms,” they argued.

Boysen-Hogrefe said fiscal pressure could now increase. If people continue to buy electric cars in droves, “the government can’t just shrug it off,” he said.

How other countries are responding

Countries such as the United Kingdom and Norway have already come up with measures to deal with the new situation.

In the UK, for instance, a levy on electric cars is set to take effect in April 2028. The so-called “Electric Vehicle Excise Duty” charges 3 pence (3.5 euro cents) per mile (1.6 kilometers) on fully electric cars and 1.5 pence on plug-in hybrids.

Since 2024, New Zealand and Iceland have required annual odometer checks for electric vehicles to calculate mileage-based fees.

And in Switzerland, electric vehicle owners will be required to pay a road-use charge from 2030, either through a weight-based fee per kilometer or a tax on electricity purchased at charging stations.

Meanwhile, Norway, a trailblazer for electric vehicles, has restricted the VAT exemption for electric cars starting this year. It has also introduced a weight-based purchase or registration tax and tolls.

Are road tolls the answer?

In Germany, too, many experts are advocating for a passenger car toll to compensate for the shortfall in energy tax revenue while also taking road use more fully into account.

“The recommended policy option is a distance- and traffic-based toll,” according to a recently published  study by the University of Münster.

“If we realistically assume that policymakers will shy away from this step, the vignette solution is recommended,” according to the report.

Under a vignette system, drivers pay a flat fee for road use over a defined period.

“If this, too, encounters insurmountable political resistance, the only solution left is to raise the motor vehicle tax,” they concluded.

This article was originally published in German.