The High Court has struck down Victoria’s right to charge a distance-based fee to drivers of electric vehicles. The constitutional challenge, brought by two drivers of EVs, has been portrayed as a protest against a levy that penalises people who are trying to do their bit to reduce carbon emissions.

But the real fight has been whether it will be Victoria or the federal government that gets its hands on the revenue from a road user charge as we switch from petrol to electric. Now that the High Court has ruled the charge unconstitutional, states and territories will need to take a different path if they are to implement efficient charges for driving.

In 2021 Victoria became the first state to introduce a per-kilometre charge on zero and low-emissions vehicles. Drivers of electric and hydrogen vehicles pay 2.8 cents per kilometre; for plug-in hybrids, it’s 2.3 cents. Drivers provide a photo of their odometer readings when they renew their car registration.

Two Victorian drivers of electric vehicles objected to the charge and took their challenge to the High Court. The essence of their argument was that Victoria does not have the constitutional authority to impose the distance-based charge because it is a form of excise, and only the Commonwealth can impose excises. The Commonwealth joined the plaintiffs in their case.

On the other side of the argument, Victoria took a different view of what constitutes an excise. Victoria’s lawyers argued that the charge is a tax not on a good but on an activity – and therefore is not an excise. Further, they argued that even if it is a tax on a good, it’s a consumption tax rather than a tax on production or distribution of a good, and so not an excise. All the other states joined Victoria’s defence.

Beyond the legal arguments is the question of whether this kind of charge is fair. Drivers of electric vehicles have argued that they are not generating carbon emissions, and so they should be rewarded, rather than penalised, for their choice of car. And though it’s not usually part of their argument, they could also point out that EVs don’t create harmful exhaust pipe pollutants, which are responsible for the deaths of about 280 Australians a year.

Even though some drivers objected to Victoria’s charge, there’s no sign that people have been put off buying electric vehicles.

But electric vehicles have downsides, too – not because they’re electric, but simply because they’re vehicles. While it’s better that any given trip be made in an electric than in a petrol or diesel vehicle, driving any vehicle – petrol, diesel, hybrid or electric – creates three other substantial costs to the community: congestion, accidents and the dominance of public space.

Congestion costs around $8 billion a year in Sydney, the Hunter and Illawarra; and $5.5 billion in Melbourne and Geelong. Road trauma costs the Australian community around $30 billion a year. Cars also take up a huge quantity of public space: estimates suggest that about half of shared street space in Melbourne is dedicated to roads and parking.

And then there’s the simple cost of providing and maintaining the road network that all vehicles use. Grattan Institute analysis shows that if electric cars were to pay their way on road construction and maintenance, they’d be paying 4¢ per kilometre, well above the 2.8¢ Victoria has been charging.

Even though some drivers objected to Victoria’s charge, there’s no sign that people have been put off buying electric vehicles. The share of new car sales that are electric shot up from 3.8 per cent in 2022 to 8.4 per cent in the first six months of this year. Governments – including Victoria’s – are encouraging this trend with discounts on registration and stamp duty, direct subsidies and zero-interest loans, and an exemption from the federal government’s fringe benefits tax.

And EV prices are falling to the point where they are approaching parity with combustion engine vehicles in some segments; more and more, it’s the waiting time, rather than the price tag, that is deterring would-be buyers.

Beyond the question of which level of government controls the revenue, this decision still leaves a headache for Victoria and the other states. EVs are much cheaper to run than petrol or diesel vehicles, both because the electricity needed to power a kilometre of travel costs much less than the equivalent quantity of petrol or diesel, and because maintenance costs are much lower. Cheaper driving is great for drivers, but it also means more driving overall; and more driving means more accidents, more congestion, and ever-increasing demands for roads and parking.

State governments need to stifle this increased demand for driving a different way. They should impose congestion charges in their capital cities, to reduce traffic congestion, and ensure their vehicle registration fees incentivise the purchase of smaller vehicles.

Smarter charges that vary according to when and where you drive, and how big your vehicle is, are more feasible technologically than ever before. This is a job for the states: the Constitution prohibits the federal government from charging different rates in different parts of the country, but the states can – and they should.

Let’s hope they grasp the opportunity.