Put the foot down on clean car standards - Grattan Institute

The federal government this week announced its three options for Australia’s first emissions standard for new vehicles. The government prefers the middle-ground option and wants to have the policy in operation by January 1 next year.

This policy is long overdue. It is not without risks, but those are easily managed. The government should proceed without hesitation.

The key policy objective for a so-called New Vehicles Efficiency Standard (NVES) is to reduce carbon dioxide emissions from motor vehicles. Australia is the only developed country, apart from Russia, to not have such a standard. This has been one of many battlegrounds in Australia’s climate war, with the casualties including Kevin Rudd, Josh Frydenberg and Bill Shorten.

The government intends to apply the standard to passenger and light commercial vehicles, currently responsible for about 12 per cent of Australia’s greenhouse gas emissions. There is bipartisan support for an economy-wide target of net zero emissions by 2050. This target will not be met unless transport emissions are reduced.

An NVES sets a limit on emissions as grams of CO2 per kilometre. That limit is reduced over time, in line with the emissions outcome targeted by the policy. The standard is applied at the fleet level, leaving vehicle suppliers to decide how to reduce emissions across their range of vehicles, whether petrol, diesel or electric.

The government’s preferred option aims to cut emissions from new vehicles by 60 per cent over the next five years, bringing Australia roughly into line with the US. Although the federal government is silent on what happens after 2030, the target also aligns with reaching zero emissions from new vehicle sales by 2035, and across the entire fleet by 2050.

It is unsurprising that the government would hasten carefully on the scheme, given its political sensitivity, but the time has come to move on. There will be further debates over the fine detail of the options, but they are not so critical as to justify further delay.

Risk of gaming the system

Implementing the preferred option has three clear benefits.

First, the proposed NVES is a reasonable compromise while in line with Australia’s climate change objectives. Second, implementation is urgent because, with a typical vehicle life of up to 20 years, zero-emission sales by 2035 is the minimum target consistent with net zero by 2050. Third, many uncertainties remain over the rate of adoption of zero-emission vehicles, making the proposal to review the scheme in 2026 a good idea.

There is a risk that the structure of the NVES leads to gaming. The decision to set different targets for passenger vehicles and light commercial vehicles, instead of a single set of targets, seems to be modelled on overseas approaches along the same path. However, 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. The government will need to monitor this issue. The 2026 review could be an opportunity to make the targets more stringent to ensure the intended outcomes are being met.

Another risk found overseas is that emissions results from testing may diverge from real-world emissions, particularly for models such as plug-in hybrid electric vehicles. Adopting the latest testing procedure and continuing to conduct real-world emissions tests should avoid any drifting in emissions.

Lower fuel and maintenance costs mean consumers will quickly be better off than they otherwise would be.

Predictably, the federal government’s announcement has revived some, albeit muted, claims and criticisms that a fuel efficiency standard will “end the weekend”, stealing utes out of Australians’ clutches. There is little validity in this claim, particularly since the targets are in line with those in the US and almost certainly achievable without major negative effects on consumers.

It is true that the purchase price of some lower-emissions vehicles may creep up a fraction as manufacturers use better technology, but lower fuel and maintenance costs mean consumers will quickly be better off than they otherwise would be and will be far better off in the long term.

Other issues with the transition to battery-electric vehicles remain. For example, the growth in demand for charging infrastructure will continue. All levels of government should continue to work with industry on initiatives to ensure drivers can be confident they can recharge where and when needed.

The federal government has already implemented the Safeguard Mechanism to reduce industrial emissions, alongside progress already being made in cutting electricity emissions. The proposed emissions standard for new vehicles 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.