What would fuel efficiency standards mean for Australia?

Australia is inching closer to following the rest of the world and implementing fuel efficiency standards, but what would this mean for car buyers?

A fuel efficiency standard is a mandatory carbon dioxide (CO₂) cap measured across a fleet of new cars sold by a manufacturer into a country each year.

It aims to lower emissions levels by continuing to reduce the cap over time, incentivising car manufacturers to offer more low and zero emissions vehicles as countries stretch to meet 2035 and 2050 climate targets.

Fuel efficiency standards cover more than 85 per cent of the global car market, including vehicles sold in the European Union, the United Kingdom, USA, Canada, India, Brazil, Japan, China and New Zealand.

How do fuel efficiency standards work?

Car manufacturers or their domestic suppliers can choose how they meet their fuel efficiency target and customer needs through a mix of new cars and new technologies. Failure to meet the target usually results in a sizeable financial penalty.

For example, let’s say that a car company sells three models into a country where the fuel efficiency target is 90g/km and the penalty is $100 per gram. The company sells 10,000 large SUVs (with average CO₂ emissions of 175g/km), 80,000 petrol sedans (120g/km) and 60,000 hybrid cars (80g/km). The company’s fleet sales average is 108g/km, so 18g/km over the target. If there are no further concessions the company will pay a penalty of $1800 on every new car sold in that country that year, some $270 million in fines.

When will Australia introduce fuel efficiency standards?

Australia is one of the only developed nations without a mandatory fuel efficiency standard. The Federal Government committed to instituting a standard at the last election and it is a significant part of the National Electric Vehicle Strategy, but it has been slow going.

There have been a number of rounds of consultation, the last outing in June around the detail of the design, and a promised outcome before Christmas this year.

It may, however, take a touch longer than that with Minister for Infrastructure, Transport, Regional Development and Local Government, Catherine King unable to reconfirm the promised timeline.

“Designing the best possible fuel efficiency standard (FES) to suit Australia’s circumstance is complex, and the Australian Government is committed to getting it right,” a spokeswoman for Ms King’s department told Drive.

“That’s why we have already undertaken significant public consultation and will be releasing an Impact Analysis for consultation and the Government’s preferred model in due course.”

The Minister for Infrastructure, Transport, Regional Development and Local Government, Catherine King.

What would a fuel efficiency standard mean for Australian car buyers?

When a fuel efficiency standard eventually takes effect in Australia, here’s what consumers can expect…

Greater choice of electric vehicles

The story about Australia playing second fiddle to just about every other market in the world when it comes to the choice and price of electric vehicles is a well-read tale. In essence it goes like this: to meet continuously strengthening fuel efficiency standards in countries with mandatory targets, car manufacturers send them large numbers of low and zero emissions vehicles. This allows these manufacturers to also sell higher-emissions vehicles like SUVs and 4WDs in those countries without penalties.

There are just over 70 battery electric and plug-in electric cars available in Australia compared to almost 200 in Europe.

There is a demand for electric vehicles in Australia – almost 66,000 have been sold so far this year – but buyers generally have to contend with 12-month waiting lists and higher-than-average prices. Any new electric vehicle releases in Australia are snapped up before the cars even land on our shores, and this is especially true for more affordable models.

Research conducted for the Climate Council and Electric Vehicle Council shows new petrol and diesel cars in Australia emit 1.5 times more than those in Europe. This means that not only is our supply of electric vehicles restricted, but we also have less choice in lower-emitting conventionally fuelled vehicles.

“Carmakers are essentially rewarded for sending their EVs to markets other than Australia, so it’s small wonder we remain at the back of the queue,” said Behyad Jafari, Chief Executive of the Electric Vehicle Council.

“Having fuel efficiency standards in Australia in line with global markets will save motorists hundreds of dollars on fuel each year and give them more affordable electric vehicles to choose from.

“I am supportive of the government consulting, I would just like them to move faster. The concern isn’t that we’ll become a dumping ground for expensive cars, we already are one. We need an ambitious standard to catch up with the world.”

Could Australian fuel efficiency standards further incentivise electric car companies like Rivian to come Down Under?

More money in your pocket

The modelling shows that efficiency standards for new vehicles will drive the adoption of cleaner technologies and reduce emissions. More efficient internal combustion engine (ICE) vehicles equate to savings on fuel and maintenance costs and a positive impact on cost-of-living pressures.

New vehicle efficiency standards are expected to increase the price of ICE vehicles by an additional 0.3 per cent per year compared to a scenario without a fuel efficiency standard. Electric vehicles are expected to fall by more than 2.8 per cent per year, and once they achieve price parity with ICE vehicles, the cost of ICE vehicles will likely drop to stay competitive.

With a fuel efficiency standard in place early next year, someone who buys a new ICE vehicle in 2027 could benefit up to $8500 over the lifetime of the vehicle. Someone who buys a new electric vehicle in 2027 could experience a saving of more than $10,000 over the lifetime of that EV.

Australia is almost entirely reliant on imports of refined fuels and crude to meet consumption. In the 2021 financial year, 91 per cent of all fuel consumed in Australia was imported. Lower fuel need means less of a reliance on oil imports and fossil fuel giants, and more economic benefits for local businesses and communities.

Better health outcomes

A strong vehicle efficiency standard will not just lower CO₂ emissions, but will also decrease pollutants such as carbon monoxide, nitrogen oxides and particulate matter that cause a range of health problems.

Research from the University of Melbourne shows that air pollution from cars, busses and trucks results in more than 11,000 deaths each year as well as over 12,000 hospitalisations for cardiovascular complaints, 6800 respiratory hospitalisations and 66,000 asthma cases.

According to the Climate Council, a strong fuel efficiency standard could prevent at least 31 million tonnes of transport pollution over the years to 2035.

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