The federal government has laid down the gauntlet for a fight on new cars as it seeks to clean up a sector that will soon become the biggest carbon polluter in the country.

The government has detailed its proposed carbon emissions standard for car makers, treading a middle path between stringent requirements in the European Union and more lax standards in the United States.

With Australia and Russia the only developed nations left without fuel-efficiency rules, the nation is in a race to catch up. That has car makers watching closely to see the government does not go “too hard, too fast”.

And the Liberals already have their eye on the key question: What will it cost?

What would the new emissions rules do?

First, let’s take a look under the hood at how the fuel efficiency standard would work.

Car makers would be required to meet increasingly stringent carbon emissions limits each year or face a penalty.

The standard isn’t applied to individual cars but instead to the total fleet a car maker sells — meaning car brands must ensure that, on average, the cars they sell are below the emissions limit set each year.

If they stay under that ceiling, they receive credits that other manufacturers who have exceeded the limit must purchase or else pay a fine. Tesla in the United States, for example, makes billions each year selling credits to other automakers that are otherwise over the emissions limit for the total cars they sell.

The idea is that car brands will try to sell more efficient cars, either through improved technology or by changing the mix of cars they sell, and potentially price those more efficient cars more competitively to encourage sales.

Will cars become more expensive under a fuel efficiency standard?

The government knows it must navigate a CO2 standard for cars carefully.

“Even though the auto industry wants a standard, Labor faced a fierce campaign from the Coalition at the 2019 election, with claims the vehicle emissions plan would “end the weekend” for people who drove utes and four-wheel drives.

The government has countered early by arguing its climate policy is also a cost of living policy because customers will end up saving money in the long run by spending less on petrol.

It says more efficient cars are already on the market, they’re just not being sent to Australia.

Climate Change Minister Chris Bowen argues people buying a new car in 2028 would end up spending on average about $1,000 less annually on fuel thanks to the more efficient cars that would be available under the scheme.

And he says regional drivers stand to benefit more from improved efficiencies.

Whether it will affect the sticker price of new cars is more complicated.

The government argues overseas standards in place for decades have had no measurable impact on car prices. It says the cost of meeting the standard in the EU amounted to just $300 per car, which the industry appears to have absorbed.

The government also says it has not limited drivers’ options, with big trucks still popular in the US where standards have been in place for decades.

The auto industry warns if the government moves too quickly for the industry to keep up it will drive up the price of cars.

As a rough example, let’s pretend that Isuzu only sold one car: its 2020 D-MAX ute, which emits about 171 grams of CO2 for each kilometre it travels according to the government’s Green Vehicle Guide.

In the first year of the government’s plan, Isuzu would be under the “light commercial vehicle” limit and would not be penalised (in fact, it would generate credits that could be sold to other car brands).

By the next year, 2026, that Isuzu ute would be seven grams over the 164-gram emissions limit, costing Isuzu $700 for each ute sold.

And by 2027, it would cost Isuzu $4,000 for each ute sold.


Passenger vehicle CO2 standard (g/km)

Light commercial vehicle CO2 standard (g/km)
















The idea is that Isuzu, or whichever car maker, is incentivised to develop more efficient technology and sell more efficient vehicles to balance out their more polluting cars and avoid a penalty.

Car makers warn if the limits are too tough or inflexible it may end up being more profitable to just pay the fine or sell fewer cars, rather than try to sell more EVs or efficient vehicles at a loss.

And they say if prices are driven up then the standard could actually backfire and worsen emissions-reduction efforts because people would end up holding onto their older, dirtier cars for longer.

Car makers have asked whether the government could introduce bonus credits for selling electric vehicles, like those used in the US, which would mean car makers would be able to get under the limit more easily if they sold more EVs.

They say those finer details will make a big difference to the cost impost on car makers.

What’s the politics?

Political players on both sides of the aisle have responded cautiously to the government’s plan.

Environmentalists and car makers are on a unity ticket that a fuel efficiency standard is necessary — though they differ on the exact model.

The Coalition has been quick to flag that its first question will be whether the CO2 standard could push up the cost of cars for Australians.

Nationals leader David Littleproud said on Monday that Australia as a small car market had to be careful to ensure CO2 standards did not rush past the technology that could support them. However, he acknowledged Australia must ultimately reach its 2050 net zero emissions commitment.

The Coalition previously moved to introduce a standard when it was in government but the policy stalled after then-prime minister Malcolm Turnbull was defeated in a leadership contest.

Greens leader Adam Bandt has not committed his party to a position but in a statement said the policy had been “stuck in the slow lane” for years. He urged only that the legislation take effect sooner than its proposed January 1, 2025, start date.

If the Coalition doesn’t support the standard, the government will need the Greens and at least two crossbenchers to pass its bill.

Independent senator David Pocock says he also backs a standard but suggests the government could start its policy from the middle of this year without penalties for the first six months to introduce the policy sooner.

Ultimately, the CO2 standard is meant to steer consumers towards purchasing more efficient cars by shaping what is available and most affordable on the market.

But after watching a New Zealand voter backlash when climate policies there drove the price of utes up by thousands of dollars, the government knows there will be a heavy consequence if it puts its foot down too hard on the pedal.

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