Australian government announces tough new fuel-efficiency standard

The Australian government’s preferred fuel-efficiency standard (FES) announced today is a rejection of the car industry’s position and lumps heavy 4x4s such as the Toyota LandCruiser into the tougher passenger vehicle segment.

The new fuel-efficiency, first previewed in 2023, is designed to lower CO2 emissions and drive the uptake of electric vehicles and it will be in place by January 1, 2025 if the government’s ambitious schedule is hit.

The federal government’s proposed FES – now called the New Vehicle Efficiency Standard (NVES) – impact analysis includes the plan, timetable and estimated benefits. It has allowed just one month for feedback ahead of the introduction of legislation.

The standard will only apply to new passenger and light commercial vehicles, not used vehicles or existing models. They work by providing car companies with targets for average emissions per kilometre across all new vehicles sold.

Makers who have corporate average fleet emissions below the limit will gain credits, while those who exceed the limit will have to either buy credits from other brands or pay fines.

The government has published three emissions reduction options in its NVES Impact Analysis.

All nominate increasingly stringent targets for CO2 emissions, with lower limits set for passenger vehicles than light commercials including utes and vans. Heavy vehicles are excluded from the plan.

Its preferred option is the “fast but flexible” ‘Option B’, which would see ‘headline target’ average emissions for passengers vehicles including SUVs and 4x4s (or ‘MC’, as they are officially categorised) such as the Toyota LandCruiser and Prado start at 141 grams of CO2 per kilometre (g/km) n 2025 and drop by 12.2 per cent per annum on average to 58g/km by 2029.

That will almost certainly drive a more rapid rate of electrification by local market leader Toyota in Australia.

In the same period, LCVs would drop by 12.4 per cent per annum on average, from 199 to 81g/km.

That reduction shapes as a huge challenge for the current crop of diesel ute makers unless they rapidly adopt electrification technology in the form of PHEV and battery-electric powertrains. Utes are also being hit by the 2025 upgrade to Euro 6d.

Note, however, that overall emissions averages across the national fleet do vary company by company and model-by-model, depending on vehicle weight.

Vehicles that exceed the limit would be fined $100 per gram per example sold. That means a fine would add up quickly. It also potentially creates a significant income stream for EV makers such as Tesla.

Overall, new car emissions would drop by 61 per cent between 2024 and 2029 under Option B.

The federal government says the Option B pace of emissions reduction would bring Australia in line with US averages by 2028 and save new cars buyers $1000 in fuel costs per vehicle that year.

Option A, which is favoured by the auto industry, has a slower emissions drop and includes ‘Super Credits’ to aid the transition for brands to electrification – they are not included in Option B. Option C accelerates faster than Option B.

The Impact Analysis estimates Option B would produce $96.46 billion in net fuel savings, vehicle maintenance, health benefits and greenhouse gas emissions between 2025 and 2050.

Among the varied immediate reactions to the announcement of the NVES, MTAA CEO and auto industry veteran Matt Hobbs probably caught the challenge for the government best by saying:

“The government has had to balance two extremes – the car companies and the single focused EV lobby.

“I cannot underestimate the difficulty in developing this standard. It has taken three governments and 12 years to reach this point. Nobody disagrees that Australia needs to join the rest of the developed world with a standard to ensure we get our fair share of new technology and choice of EVs,” he said.

“The whole industry knows putting in place a fuel-efficiency standard is the right way to go. The argument is just about the fine details. We score the government a seven out of 10, so far. Some adjustments are needed in the early years, especially in the treatment of utes. I am confident we can work with the government to ensure they get a perfect mark.”

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