Understanding the proposed Australian fuel efficiency standard

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The Federal Government is getting much closer to a fuel efficiency standard which is likely to significantly shake up the Australian automotive landscape.

The Department of Infrastructure and Transport has just published a new impact analysis on what could be an upcoming New Vehicle Efficiency Standard, outlining several different options for introducing efficiency standards for vehicles sold on our local shores. 

In this article, we’ll dive into what this could mean for Australians, what has been proposed and how it could all happen. 

The Australian Government is expected to make a decision on a new fuel efficiency standard sometime in 2024.  

What could a fuel efficiency standard look like for Australia?

The Department for Infrastructure and Transport has proposed three available options. We’ve broken down each scenario to make things easier to understand. 

Option A (a “modest and cautious” approach) involves:

• A slower start  
• Two CO2 targets, one for passenger vehicles and one for light commercial vehicles (such as utes)
• C02 target of 141g CO2/km for passenger vehicles, 199g CO2/km for light commercial vehicles
• By 2029, C02 targets to become more intense; 99g CO2/km for passenger vehicles and 172g C02/km for light commercial vehicles
• Up to 30 percent reduction in CO2 
• Penalty rate of $40 per g/km over target

In this option only, there is the potential for the Government to use super credits for EVs, PHEVs and other fuel efficient hybrids (one EV counts for 3 credits, 2 credits for a PHEV and 1.5 credits for other efficient vehicles). 

This could allow carmakers to leverage combustion models with electric and hybrid vehicles. Take for instance, Toyota could offset its diesel combustion Land Cruiser 70 Series by selling more RAV4 Hybrids and BZ4Xs, for example. 

Option B (“Government’s preferred position, with balance and achievability”)  involves:

• Designed to allow Australia to catch up with US standards 
• By 2025, 141g CO2/km target for passenger vehicles and 199g CO2/km for light commercial vehicles 
• Drastically lower targets by 2029, 58g CO2/km for passenger vehicles and 81g CO2/km for light commercial vehicles
• Up to 61 percent reduction in CO2 emissions between 2024 and 2029
• Penalty rate of $100 per g/km over target 

Option C (“the most stringent and ambitious approach”) involves:

• Aggressive reduction to C02 outputs, similar to those seen in the EU
• Passenger vehicles to have target of just 34g CO2/km for passenger vehicles and 56g CO2/km for light commercial vehicles
• Up to 77 percent reduction between 2024 and 2029
• Significant penalty of $200 per g/km over target  

At the very least, these three options mean that new cars sold in Australia in the near future will need to hit an emissions target, or stay well below them – a strategy currently used in many countries around the world. 

It’s very likely that Option B, or a close variation, will be the strategy used here in Australia.

How will the fuel efficiency standards affect you?

Although speculative at this early stage, if any of these options are put into place, it may have a significant impact on the sale of diesel and petrol-powered utes, vans, SUVs and other passenger cars, or force automakers to produce variants of these cars that are fuel-efficient and much lower in their overall carbon output. 

It will also force a greater focus on energy-efficient vehicles, where manufacturers will be able to bring in electric, hybrid and plug-in hybrid vehicles without suffering financial penalties.

The standard will only apply to new cars sold and won’t affect Australia’s existing vehicle fleet. An efficiency target will be set each year. 

The fuel efficiency standard will be mandatory, with the standards to be reviewed at regular intervals. 

The standards will apply to light vehicles and WLTP testing is proposed to be used. 

What exactly is a fuel efficiency standard?

A fuel efficiency standard (FES) is, as defined by the Department of Infrastructure, “an obligation on light vehicle suppliers to make sure the new vehicles they bring into the market, on average, meet a particular C02 per kilometre standard”. 

FESs are currently in place in many countries around the world, including the United Kingdom, the European Union, New Zealand, the United States and Canada.

Some of the first-ever fuel efficiency standards were introduced in China, Japan and the United States. For instance, China’s first compulsory fuel consumption standard was introduced in 2004.

In the United States, the first average fuel economy standard was introduced in 1975 after the 1974-1974 Arab oil embargo. 

Australia, alongside Russia, are the only two last countries in the world with an advanced economy which still lack a fuel efficiency standard. 

What are the likely key benefits of a fuel efficiency standard in Australia?

It’s not all bad news, with efficiency standards set to also have some positives for Australian new car owners. 

Although the biggest goal with a FES is to reduce emissions of new cars, there are several other advantages, including:

• Pushing Australia towards becoming net zero by 2050
• Increase the number of low emission and zero emission vehicle sales in Australia
• Positively influence automakers to build, supply and sell more electric, hybrid and plug-in hybrid vehicles in our country 
• Not disadvantaging small or affordable vehicles
• Save Australian motorists from potentially very high fuel costs 
• Eventually make Australia an even healthier place to live with far less harmful emissions