Australia finally has fuel efficiency standards

After decades of debate and no action, Australia’s New Vehicle Efficiency Standard was finally approved by federal parliament. It will apply to new cars sold from July next year.

Setting a standard promises to reduce transport emissions and move further on the path to net zero by 2050.

But the long delay means we’re starting from the back of the pack. Australian passenger vehicles currently emit at least 50% more CO₂ than the global average. Emissions have gotten worse, not better.

Our new peer-reviewed, independent expert study, conducted by consultancy Transport Energy/Emission Research, examines the inner workings of the new standard. We feed publicly available data into our model to determine whether the new standard will work as intended.

We found the new standard could significantly reduce lifetime emissions from light vehicles (cars, SUVs, utes and vans) sold in Australia from July 1, 2025. But it was weakened by changes made after a second round of consultations with the industry. Unfortunately, the standard’s performance could be further undermined by future risks.

We present the New Vehicle Efficiency Standard.

How does the New Vehicle Efficiency Standard work?

The New Vehicle Efficiency Standard sets increasingly strict targets for CO₂ emissions from new light vehicles sold between July 2025 and December 2029. Specific rules and design parameters together determine the scope and rigor of the standard .

It is important to note that the rule does nothing to regulate emissions from vehicles already on the road and those purchased before July 1, 2025. These vehicles will be on the road for many years.

But the standard’s ability to actually reduce emissions depends on its design. The devil is in the detail. Let’s take a closer look.

Exploring design options

The federal government experimented with different designs and consulted with industry and the broader community before reporting design options.

In February, the government defined three options: Option A (slow start); Option B (fast and flexible start); and Option C (quick start). Option B, intermediate, was preferred, which balanced “ambition and viability.”

After further consultation, an updated report was published in March with changes to Option B. Some specific large SUVs were moved to the more lenient standard for light commercial vehicles, which also became less strict. The next day a bill was presented.

What we did

Although government reports provide useful information, there is not enough detail to fully understand how likely emissions reductions were assessed.

That’s why, in our new research, we developed a tool to calculate changes in on-road exhaust CO₂ emissions for five future vehicle model years (2025 to 2029) over their lifetime, using data from the year 2022 model.

We compare these results with a reference scenario, which reflects the expected adoption of battery electric vehicles in the absence of the new standard.

In the European Union, emissions and sales data are freely and publicly available for the sake of transparency and accountability. This is not the case in Australia, where the Federal Chamber of Automotive Industries controls access to data.

To solve this problem, we extracted information from the latest report of the National Transport Commission, as well as data from other online sources.

We combine officially reported vehicle sales and emissions performance data for Australian light vehicles (cars, SUVs, utes and vans) by make and model, with other required information such as vehicle weight estimates.

Finally, we consider the range of measures manufacturers can take to reduce emissions from their new vehicles, such as switching to electric or hybrid models or downsizing their combustion engines, to meet their emissions targets.

what we found

Our research estimates that the New Vehicle Efficiency Standard will significantly reduce lifetime on-road CO₂ emissions for new vehicles purchased between 2025 and 2029.

We estimate that the new standard would save 87 million tons of real-world CO₂ emissions. By comparison, the original “Option B” version of the standard would have saved 103 million tons.

Two side-by-side graphs comparing real-world CO₂ exhaust emissions for New Vehicle Efficiency Standard (NVES) design options to the baseline, for light-duty vehicles with model years (MY ) 2025 to 2029.
Comparison of real-life CO₂ exhaust emissions for New Vehicle Efficiency Standard (NVES) design options to baseline, for light-duty vehicles with model years (MY) 2025 to 2029.
TER 2024

Compared to having no fuel efficiency standard at all, we found that the new standard would reduce emissions by just 2% for vehicles from model year 2025. But it increases to 51% for vehicles sold in 2029.

The final design of the rule is weaker than the originally proposed Option B, which would have reduced emissions by approximately 6% by the 2025 model year, increasing to 58% by the 2029 model year.

The new standard also allows manufacturers to create and market emissions credits. This means that if a certain manufacturer is exceeding its goals and reducing emissions faster than necessary, it can transfer the credits to another model year for a certain period or sell them to a manufacturer that has not met its expected goals.

Beware of future risks

Some features of the New Vehicle Efficiency Standard could undermine its effectiveness.

To truly reduce emissions, the standard must reflect fuel consumption and road emissions as closely as possible. Unfortunately, the new standard is still based on an outdated test developed in the 1970s that significantly underestimates fuel consumption and emissions. The government intends to update the testing protocol and align it with international best practices, but suggests waiting until at least mid-2028.

There is also a risk that the new standard design will further encourage the trend towards large, heavy passenger vehicles, making it even more difficult to reduce emissions from road transport. Manufacturers’ emissions performance targets (in grams of CO₂ per kilometer) are largely determined by the average weight of their fleet, especially in the Australian standard. This means that a fleet full of heavy SUVs will have a higher emissions allocation, making requirements potentially less stringent for manufacturers that choose to focus on large models.

Are we there yet?

The Australian New Vehicle Efficiency Standard is a step in the right direction. But if we are serious about achieving the net zero emissions target for road transport, the new standard must be supported by a range of other policies. These include public awareness campaigns that promote a shift from polluting modes of transport to lightweight, low-emission vehicles.

How effective the new standard is in reducing road emissions from new vehicles remains to be seen.

Some improvements are needed to make the standard more robust, better ensure its effectiveness and avoid internationally known errors and loopholes in vehicle emissions standards. They include the adoption of an updated test protocol and the monitoring of fuel consumption on board, as is done abroad.

We have narrowly avoided being the last developed country without mandatory emissions standards. Russia can now claim that title. But our research shows that the new standard is quite far from the best in the world. No, unfortunately we are not there yet.

Read more: Australian passenger vehicle emissions rates are 50% higher than the rest of the world – and getting worse