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We have something similar in NZ, though it only applies to diesel. Because most diesel vehicles have to distance based tax due to their weight, there are no road taxes on diesel. Petrol on the other hand is taxed on the fuel, and heavy petrol vehicles get a rebate of the petrol taxes as to not double-dip.
The problem is that up to 3500kg, all diesel vehicles are taxed the same. So if I drove a Hyundai Getz CRDi that does 4.5L/100km, I'd be effectively paying ~90c/liter in tax (making diesel cost $2.60NZ/liter vs $2.18 for petrol). However if I drove a Nissan Navara (Frontier in the US) that gets 9.0l/100km, I'd only pay ~45c/liter in road tax, so diesel would cost me $2.15NZ/liter.
My family are currently looking at replacing our Sonata with a small hatch, and looking at the Getz, the diesel uses a quarter less fuel at 4.5l/100km, but will only save 10% in fuel costs compared with the petrol (6l/100km). It's a major disadvantage to diesel cars, which would be very popular if the tax wasn't so dumb (diesel pickups are really common, in fact, petrol models have almost no resale value).
I think that mileage based taxes are okay, as long as they are charged at a rate consistent with the damage done to a road way, and apply to all fuel sources.
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