What does the New Vehicle Efficiency Standard mean for motorists?
06 February, 2024
The Australian Government is introducing a new policy to make cars cleaner and cheaper to run. What does this mean for EVs in Australia, and do you have to buy one?
The Australian Government on Sunday announced it will introduce a long-awaited New Vehicle Efficiency Standard (NVES), stepping Australia towards cleaner, more affordable transport.
Set to take effect from 1 January 2025, the landmark decision will see a broader range of electric vehicles (EVs) arrive on the market, ensuring Australia is not left behind in a transition that is already well underway overseas.
While still ensuring the choice for drivers to choose fuel efficient vehicles powered by petrol and diesel, the new standard would mean that the latest, most efficient vehicle technologies would come to Australia.
Currently, because Australia has no legislated vehicle efficiency standards, carmakers can still sell new vehicles that use less efficient engines.
By contrast, the European Union first introduced vehicle efficiency standards limiting emissions in 20091, followed swiftly by the US2.
This means Australia's average vehicle emissions are 20 per cent more than in the US, and 40 per cent more than in Europe.
...because Australia has no legislated vehicle efficiency standards, carmakers can still sell new vehicles that use less efficient engines.
Healthier air, cheaper transport and better fuel security
The new policy promises to clean up Australia’s transport-related emissions – which includes not only carbon dioxide but also particulate matter and other gases which cause respiratory health issues, causing 11,000 deaths a year3.
Spearheaded by the Minister for Climate Change and Energy Chris Bowen and Minister for Transport Catherine King, the new legislation would save $1000 a year on fuel per year on average for those who stick with fossil-fuelled vehicles.
NRMA CEO Rohan Lund said in a statement of the announcement that with no NVES in place: “...Australian families and businesses (are) not benefiting from the best technology designed to reduce fuel consumption.
“The NRMA’s opposition to Australians being forced to spend more money on fuel than they otherwise should have to, is well known across the country.”
By aligning with the US standard by 2028, the new measure is expected to save Australian motorists $100 billion in fuel costs up to 2050.
The standard would also shore up Australia’s fuel security. Currently, all fossil fuels are sourced from overseas, leaving Australian drivers exposed to fluctuating prices due to global affairs. More efficient internal combustion engine (ICE) vehicles as well as low and zero-emissions EVs alleviate that pressure.
Spearheaded by the Minister for Climate Change and Energy Chris Bowen and Minister for Transport Catherine King, the new legislation would save $1000 a year on fuel per year on average for those who stick with fossil-fuelled vehicles.
NRMA CEO Rohan Lund said in a statement of the announcement that with no NVES in place: “...Australian families and businesses (are) not benefiting from the best technology designed to reduce fuel consumption.
“The NRMA’s opposition to Australians being forced to spend more money on fuel than they otherwise should have to, is well known across the country.”
By aligning with the US standard by 2028, the new measure is expected to save Australian motorists $100 billion in fuel costs up to 2050.
The standard would also shore up Australia’s fuel security. Currently, all fossil fuels are sourced from overseas, leaving Australian drivers exposed to fluctuating prices due to global affairs. More efficient internal combustion engine (ICE) vehicles as well as low and zero-emissions EVs alleviate that pressure.
How does the NVES work?
The NVES requires automakers to meet specific efficiency levels for all new cars sold in Australia, by focusing on reducing carbon dioxide (CO2) emissions per kilometre.
The system allows manufacturers to earn credits by selling more efficient vehicles, such as EVs, which typically have lower or zero emissions. Conversely, if manufacturers sell vehicles that exceed the CO2 emissions threshold, they will earn debits and need to offset these higher emissions by selling more efficient vehicles, or face financial penalties.
Low and zero emissions vehicles may earn extra credits. For example, each EV sold could gain carmakers a triple credit, plug-in hybrids could earn a double credit, and non-pluggable hybrids could earn 1.5 times a normal credit.
If carmakers exceed their stipulated limits, they could be required to pay fines of up to $200 for every extra gram of CO2 per kilometre past their set limits.
Additionally, this policy is expected to pivot Australia away from being a 'dumping ground' for less fuel efficient vehicles, aligning it with global standards and ensuring that Australians have access to the latest and most efficient automotive technologies, including hybrid and electric vehicles.
Will EVs become cheaper under the NVES?
Yes, because policy settings that encourage the development of technology will see the local EV industry scale up, helping to bring overheads down.
There would also be more competition between carmakers to offer drivers more EVs at lower prices. Additionally, higher EV sales will see more investment in charging infrastructure.
Will I still be able to buy the car I want?
Yes. All types of vehicles, from small petrol-fuelled hatchbacks to large diesel-powered SUVs and utes, will still be available for purchase.
Light commercial vehicles (LCVs, which includes utes and vans) will have a higher CO2 target than passenger cars and SUVs, ensuring fleets and tradespeople are not unfairly impacted. And a more lenient CO2 target will be applied to vehicles that weigh under 1.5 tonnes.
Australians will be better off because they will be able to buy more fuel efficient vehicles, and carmakers will be encouraged to bring more types of EVs to Australia also.
What comes next?
The exact policy settings are still under discussion. The government has outlined three options: “Slow Start”, “Fast and Flexible”, and “Fast Start”.
UPDATE: The NVES was passed in May 2024, with revised settings. For more information on the final policy settings, read here.
Table 1: NVES Policy Options
|
NVES |
Slow Start |
Fast and Flexible |
Fast Start |
|
How the CO2 target should change over time |
Slow start and broadly equivalent rate of decline as the US NVES. Two CO2 targets, one for passenger vehicles and a higher target for light commercial vehicles but includes many SUVs in the light commercial vehicle class, along with utes and vans. No catch up. |
A strong, ambitious and achievable NVES that seeks to catch up with the US around 2028 and then match the stringency of these standards, while not seeking to go beyond these standards. Two CO2 targets, one for passenger vehicles and SUVs, and a higher target for utes and vans (including large pick-ups) in the light commercial vehicle category. |
An aggressive NVES that catches up with the US around 2026 and then brings forward US targets for 2029-2031 to the Australian NVES in 2028 and 2029. Two CO2 targets, one for passenger vehicles and SUVs and a higher target for utes and vans (including large pick-ups) in the light commercial vehicle category. |
|
CO2 target break points based on fleet limit curves |
No break points. Limit curve based on 2022 vehicle fleets. |
Initial break points for passenger vehicles are 1.5 tonnes and 2 tonnes. Break points for LCV are 1,500 kg and 2,200 kg. Limit curve based on 2022 vehicle fleets. In 2026, 2025 limit curves will be used. After 2025, break points will be updated on rolling basis. |
Initial break points for passenger vehicles are 1.5 tonnes and 2 tonnes. Break points for LCV are 1,500 kg and 2,200 kg. Heavier vehicles subjected to 30 per cent reduction on limit curve. |
|
Vehicle categories |
PV class is passenger vehicles, light SUVs and two-wheel drive versions of four-wheel drive vehicles (MA and MB categories). LCVs class is larger SUVs, four-wheel drives, and utes and vans GVM up to 4.5 tonnes (MC, NA and NB1 vehicles, with some exceptions). |
PV class is passenger vehicles, light and heavier SUVs and 4WDs (MA, MB and MC categories). LCV class is utes and vans GVM up to 4.5 tonnes (NA and NB1 vehicles with some exceptions). |
PV class is passenger vehicles, light and heavier SUVs and 4WDs (MA, MB and MC categories). LCV class is utes and vans GVM up to 4.5 tonnes (NA and NB1 vehicles with some exceptions). |
|
Credit banking, pooling and trading Regulated entities can sell credits to those who haven't met targets. They can also bank credits for later. Pooling allows a group to form a collective entity. |
Credit banking, pooling and trading are possible. Credits must be used within five years of issuance, and debits must be settled within five years of issuance. |
Credit banking and trading are offered. No pooling. Credits are valid for three years after issuance, debits must be settled within two years after issuance. |
Credit banking and trading are offered. No pooling. Credits are valid for three years after issuance, debits must be settled within two years after issuance. |
|
Technology credits Supercredits give more credits when a qualifying vehicle is sold. Off-cycle credits are given for specific technology. Air conditioning credits are given for using low global warming potential refrigerant. |
Adopt supercredits for various emissions reduction technologies. Generous credits for efficient vehicles, plug-in hybrids, and zero emission vehicles. Off-cycle and air-conditioning credits available. All credits to be phased out by 2029. |
Maximise simplicity and transparency: No supercredits, no off-cycle credits, and no air conditioning credits. |
Maximise simplicity and transparency: No supercredits, no off-cycle credits, and no air conditioning credits. |
|
Penalties |
Low penalty rate of $40 per g/km. NVES commences in 2025 but offers a 2-year grace period with binding targets commencing in 2027. |
Moderate penalty rate of $100 per g/km. Fastest practical commencement. NVES commences in full on 1 January 2025. |
High penalty rate of $200 per g/km. Fastest practical commencement. NVES commences in full 1 January 2025. |
|
Cumulative CO2 abatement 2030 / 2035 / 2050 |
0.97 Mt / 0.97 Mt / 0.97 Mt |
25.77 Mt / 97.13 Mt / 369.18 Mt |
33.6 Mt / 125.1 Mt / 443.4 Mt |
Each option has been analysed according to five guiding principles: whether it is effective, equitable, transparent, credible and robust, and “enabling” - whether it will bring Australians the best technology available.
According to the analysis, the first option fails the effectiveness principle by not incentivising carmakers to bring clean technology fast enough, which means it is also not enabling nor equitable.
The last option would help Australia align with US targets faster but says it risks giving carmakers insufficient time to adapt. The document says that the middle-of-the-road “Fast and Flexible” option meets all the guiding principles and is the government’s preferred policy setting.
|
Guiding Principle |
Slow Start |
Fast and Flexible |
Fast Start |
|
Effective: Reduce Australia’s new vehicle CO2 emissions, in line with emissions reduction and net zero targets and fuel savings achieved in other advanced markets. |
2030: 0.97 Mt 2035: 0.97 Mt 2050: 0.97 Mt |
2030: 25.77 Mt 2035: 97.13 Mt 2050: 369.18 Mt |
2030: 33.60 Mt 2035: 125.09 Mt 2050: 443.44 Mt |
|
Equitable: Ensure equitable access to the vehicles Australians need for work and leisure. |
Reduced access to EVs, advanced ICE and hybrids. |
Improved access to EVs, advanced ICE and hybrids. Access to small and medium vehicles protected by break points. |
Potential withdrawal or limited sales volumes of some ICE vehicles. Improved access to EVs, advanced ICE and hybrids. |
|
Simple and transparent: the NVES will focus on simplicity and clarity in design and operation. NVEEVS policy can be complicated, leading to higher costs for following rules, less clarity, and uncertain results, especially when trading markets for credits are set up. |
Public reporting and complete transparency on the number of credits and abatement achieved. Complex arrangements in relation to credits risks reduced transparency. |
Public reporting and complete transparency on the number of credits and abatement achieved. Absence of technology credits allows the NVES to be predictable and transparent. |
Public reporting and complete transparency on the number of credits and abatement achieved. Absence of technology credits allows the NVES to be predictable and transparent. |
|
Credible and robust: Draws on expert analysis and experience. Intervention should be designed with the latest and best analysis available. |
Limited abatement reduces this option’s credibility |
The proposed option has been developed after extensive consultation. Consistent with international arrangements. |
Exceeds the stringency of international NVES policies. |
|
Enabling: vehicles with the best emissions and safety technology to be available to Australians, as good as or better than what is available internationally. |
Reduced access to EVs, advanced ICE and hybrids. |
Improved access to EVs, advanced ICE and hybrids. |
Potential reduced access to affordable new vehicles, partially offset by greater availability of relatively affordable low and zero emissions vehicles. |
While the implementation of the “Fast and Flexible” policy preferred by the government would cost $46.5 billion, the overall benefits would more than triple that: $143 billion, including fuel savings, reduced maintenance costs, health benefits and greenhouse gas emission impacts.
By contrast, the “Slow Start” would only cost $410 million, the benefits would only amount to $580 million. The “Fast Start” option would cost $58.75 billion, reaping $173.65 billion in benefits but risking “undesirable consumer outcomes.”
Table 3: Fast and Flexible: Impacts - 2025 to 2050
|
Benefits ($AU): |
Costs ($AU): |
|
Fuel savings: $107.6 billion |
Government and compliance: $180 million |
|
Reduced vehicle maintenance: $15.46 billion |
Vehicle technology costs: $7.69 billion |
|
Health benefits: $5.52 billion |
Electricity costs: $29.38 billion |
|
GHG emissions: $14.38 billion |
Battery replacement costs: $9.23 billion |
|
Total benefits: $142.95 billion |
Total costs: $46.49 billion |
|
Net benefits: |
$96.46 billion |
|
Benefits cost ratio: |
3.08 |