As the adoption of electric vehicles accelerates, governments face a growing fiscal challenge: how to fund roads without fuel taxes while maintaining momentum towards cleaner transport.
Electric vehicles (EVs) are the future of sustainable road transport; yet they also pose a fiscal conundrum: how to fund roads and transport infrastructure when fuel tax revenues decline? Jordan – an early EV adopter in the Middle East – has responded by imposing new taxes on EVs. However, this move risks slowing the transition to clean transport and raises an important question: Are there more effective ways to balance revenue needs with decarbonisation goals?
Alternative revenue models – such as road usage fees, congestion pricing, and weight-based vehicle charges – could provide sustainable infrastructure funding without undermining EV adoption. Examining Jordan’s approach within a global context offers lessons to the MENA governments navigating this transition.
The Tax Revenue Shortfall
EV adoption is rising worldwide. In 2023, the International Energy Agency estimated that EV sales accounted for 18% of all global car sales, up from 14% in 2022. This trend is also evident in MENA: the region’s EV market was valued at some $2.9 billion in 2023 and is projected to reach $9.4 billion by 2029. With climate targets, declining battery costs, the expansion of charging infrastructure, and government incentives to encourage adoption driving growth, EVs are set to dominate road transport.
Yet, this shift presents a fiscal challenge. Historically, fuel taxes have been a key source of revenue for governments, funding transport infrastructure, road maintenance, as well as other public expenditures. As EVs replace combustion-engine vehicles, these revenues are shrinking. While the impact is currently limited in most countries, it will intensify as EV adoption rises.
Jordan, one of the region’s frontrunners in EVs, is already feeling the strain. With some of the region’s highest fuel taxes, the country has traditionally relied on fuel-related revenues to fund a range of budgetary needs, from infrastructure maintenance to debt servicing. Recent government figures are unavailable; however, media reports indicate that in 2017, fuel derivate taxes – particularly on unleaded gasoline – accounted for 13% of total government revenues. By 2020, fuel tax revenues had fallen to $998 million (JOD 708 million) from $1.2 billion (JOD 854 million) in 2017 due to the pandemic. The IMF has since noted a decline in government revenue due to weaker domestic demand, which suggests that while fuel tax income remains significant it has yet to make a full recovery.
In response, Jordan has introduced an EV tax – though this has lacked consistency. Initially introduced in 2024, the tax was later reduced before being revised again, with a phased increase planned from 2025 to 2027. This unpredictability risks undermining consumer confidence in the EV market.
The challenge Jordan faces is not unique. Governments worldwide are grappling with how to offset declining fuel tax revenues. In the UK, fuel taxes are expected to raise approximately $30 billion (£24.3 billion) in the 2024–25 fiscal year, down from $35 billion (£27.6 billion) in 2019, when EVs constituted just 1.5% of new car sales. Similarly, in the US, fuel taxes fund around 80% of federal highway spending.
Alternative Solutions for Sustainable Transport Funding
The transition to EVs is necessary for climate goals; yet it should not come at the cost of underfunded infrastructure or policies that penalize adoption. Jordan’s EV tax, while an understandable short-term response, risks slowing the transition that Jordan aims to champion. More equitable and sustainable alternatives exist.
Road Usage Charges
One increasingly popular model is the road usage charge (RUC), which ties revenue to mileage rather than fuel consumption. An advantage of this model is that it ensures all vehicle types contribute equally to infrastructure costs. The US state of Oregon piloted an RUC in 2015, and by 2021 a total of 13 states had adopted it. Oregon's system charges drivers $1.9 cents per mile, tracked via GPS or odometer readings, with rebates to prevent double taxation for those still paying fuel taxes. Countries with rugged terrain and extensive rural road networks – such as those in MENA – could benefit from a mileage-based approach, though provisions would need to be made for rural communities.
Congestion Pricing
Another viable strategy is congestion pricing, which charges drivers for using roads in high-traffic areas or during peak hours. This model not only generates revenue; it also reduces congestion and encourages the use of public transport.
After the UK’s capital London introduced a congestion charge in 2003, city-centre traffic fell by 26% in just four years and saved the economy between $2.5 million (£2 million) and $5 million (£4 million) in congestion-related losses per week. Most MENA capitals, including the Jordanian capital Amman, face severe gridlock, making this pricing model a potentially effective policy tool.
Vehicle Registration Fees
A third approach is to adjust vehicle registration fees based on weight and road impact. The rationale is that larger and heavier vehicles such as SUVs and trucks contribute more to road deterioration over time, and should be taxed accordingly. Norway, a global EV leader, employs a weight-based tax system that includes a carbon dioxide emissions tax, and a nitrogen oxides emissions tax, to ensure a fairer distribution of infrastructure costs.
The Road Ahead
No single policy is a perfect fit, and each option carries trade-offs. A socio-economic assessment should precede any policy shift to ensure fairness and maximise effectiveness.
Jordan’s experience serves as a valuable case study in the electrification of the transport sector. There are alternative, long-term, models that will enable governments to collect revenues without hindering EV deployment, such as road usage charges, congestion pricing, and vehicle registration fees. Balanced approaches that integrate fiscal responsibility with social and environmental sustainability are key to navigating this transition.
