The stated objective for the federal government’s proposed New Vehicle Efficiency Standard (NVES) is to save Australians money on fuel, stimulate the provision of more efficient vehicles into the Australian market, and reduce carbon dioxide (CO2) emissions from new cars. Australia is the only developed country, apart from Russia, to not have such a standard.

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Implementing the government’s preferred option has two clear benefits. First, the proposed option is in line with Australia’s climate change objectives. Second, implementation is now urgent because, with a typical vehicle life of up to 20 years, 100 per cent zero-emissions sales by 2035 is required to hit net zero by 2050. 

With many uncertainties remaining over the rate of adoption of zero-emissions vehicles, the proposal to review the scheme in 2026 is also a very good idea. 

But the government should reconsider its decision to set different targets for passenger vehicles and light commercial vehicles, instead of a single set of targets. It is less economically efficient, and puts emissions reductions at risk via a perverse incentive. Experience overseas has shown that the steady increase in light commercial vehicle sales has eaten away at the emissions-reduction gains. Whatever the targets, the 2026 review could be an opportunity to ensure the intended outcomes are being achieved. 

The government’s announcement has revived some criticisms that a fuel efficiency standard will ‘end the weekend’. It will not, particularly since the targets are in line with those in the US and almost certainly achievable without major negative impacts on consumers. 

It is true that the average price of lower-emissions vehicles may increase, but on average by about only 1 per cent. Lower fuel and maintenance costs mean that consumers will quickly be better off than they otherwise would be – and will be far better off in the long term. 

The government has implemented the Safeguard Mechanism to reduce industrial emissions, alongside progress already being made in cutting electricity emissions. The proposed NVES fills the next biggest gap and should proceed with no further delay.

Tony Wood

Energy and Climate Change Program Director
Tony has been Director of the Energy Program since 2011 after 14 years working at Origin Energy in senior executive roles. From 2009 to 2014 he was also Program Director of Clean Energy Projects at the Clinton Foundation, advising governments in the Asia-Pacific region on effective deployment of large-scale, low-emission energy technologies.

Alison Reeve

Energy and Climate Deputy Program Director
Alison Reeve is the Climate Change and Energy Deputy Program Director at Grattan Institute. She has two decades of experience in climate change, clean energy policy, and technology, in the private, public, academic, and not-for-profit sectors.

Richard Yan

Senior Associate
Richard Yan is a Senior Associate in the Grattan Institute’s Energy and Climate Change program. He has previously worked at the Commonwealth Treasury, with a focus on migration, and tax and transfer policy and modelling.