MilometryPay per mile: how the world is starting to tax distance, not fuel
Fuel duty shrinks every time a car goes electric, so governments are moving to charge by the kilometre instead. New Zealand, Iceland and Oregon are already doing it, and the UK is watching.
General information, not advice. Written as general information and correct as far as we know on 1 October 2026. The law changes, and how it applies depends on the facts of your situation. This is not legal advice: check the official guidance, or speak to a solicitor, before you rely on it.
For a century the deal was simple. Governments taxed the fuel you bought, and because a heavier car on a longer journey burned more of it, the tax roughly tracked how much you used the roads. Nobody had to watch you drive. The pump did the metering.
Electrification breaks that deal. A car that burns no petrol pays no fuel duty, and a very efficient one pays little, yet both still wear the tarmac, sit in the same jams and need the same bridges maintained. As fleets electrify, the money that builds and repairs roads drains away while the traffic stays exactly where it was. Fuel duty is one of the larger single revenue lines most treasuries have, and it shrinks with every litre not burned.
The response, in a growing number of countries, is to stop taxing the fuel and start taxing the distance. Charge by the kilometre, or by the mile, and it no longer matters what is under the bonnet. Here is where that has already happened, and what it looks like in practice.
New Zealand: electric cars join a system that always charged by distance
New Zealand is the clearest case, because it never relied on fuel duty alone. Diesel vehicles there have paid Road User Charges for decades, buying distance in advance and displaying a licence for the kilometres they have paid for. Petrol is taxed at the pump, but diesel, which powers most of the heavy fleet, is charged by how far it goes.
Electric cars were kept out of that system while the government wanted to encourage them. That exemption ended on 1 April 2024. Since then, light electric vehicles under 3.5 tonnes pay Road User Charges at the same rate as a light diesel, NZ$76 per 1,000 kilometres, bought in blocks ahead of travel. The logic was openly about fairness and funding: once electric cars passed a couple of per cent of the fleet, letting them use the roads for nothing was costing too much and asking petrol and diesel drivers to carry them.
It is a blunt system, based on odometer readings rather than tracking, and that is part of why it works. There is no map of where you went, only how far.
Iceland: the first country to charge every vehicle by the kilometre
Iceland has gone further than almost anyone. It began the same way, with a per-kilometre fee for electric and plug-in hybrid vehicles in early 2024, on the grounds that those cars paid little or no fuel tax. Then it did the thing most governments only talk about. From 1 January 2026, after the change was approved by the Althingi in December 2025, the kilometre fee applies to every vehicle on the road, whatever it runs on.
Petrol, diesel, hybrid or electric, the charge is the same for a car of the same weight. For a passenger car up to 3.5 tonnes the rate is ISK 6.95 per kilometre, a little under six pence, rising in weight bands to far more for the heaviest lorries. Owners report their odometer and pay monthly. Fuel is being untaxed as the distance charge comes in, so the state is swapping one base for another rather than simply adding a charge on top.
That makes Iceland one of the first places in the world to run a national, fuel-neutral, pay-per-distance system across the whole fleet. It is a working answer to the question every other country is still circling: what replaces fuel duty when the fuel is gone.
The United States: a decade of quiet trials
The United States has been experimenting longest and committing least. Oregon, the state that invented the fuel tax in 1919, launched OReGO on 1 July 2015, the first operational pay-per-mile programme in the country. Drivers volunteer, report their mileage, and pay a road usage charge of two cents a mile instead of the state fuel tax, with the base vehicle registration on top.
Ten years on it is still voluntary and still small, which tells you how hard the politics are even when the engineering is solved. What has changed is the direction of travel. From 2027 Oregon begins steering electric vehicle owners towards a choice at renewal: a flat fee, or pay by the mile. Other states have run their own pilots, and the federal government has funded more, because every state that leans on fuel tax faces the same slow erosion. The American pattern is a long trial becoming, cautiously, a default.
The United Kingdom: watching, not moving
The UK has no national road pricing scheme, and no current plan to introduce one. What it has is the same pressure everyone else is feeling. Electric cars started paying Vehicle Excise Duty from April 2025, closing the most obvious gap, but Vehicle Excise Duty is a flat annual charge that has nothing to do with distance, so it does not restore the link between using the roads and paying for them.
Britain has been here before in spirit. It barely tolls its roads, it abandoned a national road pricing plan in the 2000s after a public backlash, and the subject is politically radioactive in a way that a fuel tax, hidden in the pump price, never was. Yet the arithmetic does not care about the politics. As the fleet electrifies through the late 2020s, the fuel duty line keeps falling, and a distance charge is the obvious thing it is replaced with. The question is when, not whether.
The technology, and the catch
Two models are emerging, and the difference matters. The simple one is odometer-based: you report how far you have driven, and you pay for it. New Zealand and Iceland work this way. It is cheap, it is fuel-neutral, and it reveals nothing about where you went. The sophisticated one uses GPS or telematics to meter distance automatically, which can charge different rates on different roads or at different times, but which also means something, somewhere, knows your movements. Every scheme that has reached for the second model has run straight into privacy objections, and most have retreated to the first.
Whichever model wins, the common thread is that distance becomes the thing you are billed for. That puts a quiet premium on knowing your own numbers. When the tax was in the fuel, your mileage was the pump's business. When the tax is the mileage, it becomes yours: the figure you report, the one you can be charged on, and the one worth being able to stand behind. A driver who already keeps an accurate, automatic record of every trip is simply ready for a world that has started to ask how far, rather than how much.
None of these systems is finished. Rates change, exemptions shift, and the UK may stay on the fence for years. But the direction is set in enough places now to call it a trend rather than an experiment. The century of taxing the fuel is ending. The century of taxing the distance has quietly begun.
General information, not legal or tax advice.
