What the first federal emission standard means for Aussie car buyers

The ink officially dried on the Australian Government’s New Vehicle Efficiency Standard (NVES) at the start of this year, bringing with it a set of stringent new laws designed to reduce the carbon footprint of the local car market.

At its heart, the NVES is an environmental policy targeted at vehicle manufacturers, but the regulations will likely also have tangible impacts on new car buyers.

Depending on the kind of vehicle you buy, NVES could help result in anything from savings at the petrol pump to massive vehicle price inflation at the dealership.

With so much noise coming from all sides of this politically charged issue, sorting the fact from fiction can be challenging. So, let’s get to the heart of what Australia’s first new-vehicle emissions legislation means for everyday consumers.

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What is the NVES anyway?

The Australian New Vehicle Efficiency Standard is a set of laws imposed to incentivise manufacturers to reduce CO2 emissions across their vehicle lineups.

All new passenger and light commercial vehicles sold with a mass of less than 4.5 tonnes are covered under the scheme.

If carmakers exceed an average carbon emissions target on the vehicles they sell each year, they will be penalised $100 per g/km of CO2 for every vehicle which exceeds the target.

For 2025, the mandate for passenger cars (Type 1) is 141g/km of CO2, with light commercial vehicles and heavy-duty SUVs (Type 2) set at 210g/km or less.

These CO2 caps will reduce every year until 2029, when they will be much lower at 58 and 110g/km respectively, forcing manufacturers to sell increasingly efficient vehicles.

Brands can also earn emissions ‘credits’ by beating their fleet-wide targets, which can then be used in a subsequent year to help meet tighter CO2 targets, or sold on to other brands to help them reach their emissions targets.

While the NVES legislation came into effect on January 1, 2025, penalties won’t start being accrued until July 1. However, the first round of fines won’t be paid until 2029, as carmakers have three years from receiving an annual ‘interim emissions value’ to reduce emissions.

Will the NVES kill our favourite vehicles?

No. Rather, carmakers will be faced with some difficult decisions regarding inefficient models.

The first option is to do nothing. Brands can continue to sell as many high-emitting vehicles as before, but that choice will result in hefty fines.

For example, the headline 2025 emissions target for smaller Type 1 vehicles is 141g/km. In the hypothetical scenario that a manufacturer sells 20,000 Type 1 vehicles with an average emissions output of 150g/km, they will be subject to a fine of $18 million. Far from ideal.

In order to avoid a financial hit, brands may opt to pass fines on to consumers in the form of price hikes. For instance, in the example above each vehicle sold would incur a $900 fine. Instead of taking a blow to their bottom line, the carmaker could instead charge buyers an extra $900 per car. Problem solved, albeit at the likely expensive of sales.

The third option available to manufacturers is to offset the sale of inefficient vehicles by selling more low-emission models.

So, even some of the ‘dirtiest’ vehicles on our roads, including the diesel-powered utes that accounted for three of the top five most popular models last year, are likely to survive, even if they become less profitable for their makers.

Is the NVES a “ute tax”?

Federal opposition leader Peter Dutton has labelled the NVES a “ute and family car tax”, while Nationals party leader David Littleproud warns the cost of popular SUVs will go up by as much as $18,000 over the coming years. Neither statement is true.

The NVES isn’t a tax at all, as a tax is a mandatory charge created to collect revenue for the government. Financial penalties associated with the scheme are a cost of non-compliance, but the requirement for manufacturers to meet vehicle efficiency standards isn’t a tax, and no revenue is raised.

There’s no guarantee that new car buyers will be forced to pay more for their dream machines, either. It’s entirely up to manufacturers whether they pass NVES fines on to consumers, or absorb them.

Finally, utes and family cars aren’t being singled out. The NVES applies to all vehicles, and emissions targets will be adjusted up or down depending on the weight of the vehicle.

For example, Type 1 vehicles including traditional passenger cars (hatchbacks, sedans, wagons, coupes, convertibles and people movers) and SUVs, such as anything from a Toyota Yaris to a Kia Sorento, will be subjected to lower emissions limits than heavier Type 2 vehicles.

These include light commercial vehicles such as utes, vans and heavy-duty off-road SUVs with a braked towing capacity of 3000kg or more and a ladder-frame chassis. Think RAM 1500, Toyota LandCruiser, Toyota Prado, Nissan Patrol and Ford Everest, but not car-based monocoque vehicles like the Land Rover Defender or Volkswagen Touareg, or light-duty tow vehicles like the GWM Tank 300 and Suzuki Jimny.

Will the NVES make new cars more expensive?

While the legislation itself has no direct impact on new car prices, some manufacturers have already admitted that government fines will likely be passed on to consumers.

Isuzu Ute Australia was one of the vocal manufacturers calling on the federal government to loosen the NVES back in March.

“Vehicle brands that cannot increase vehicle pricing to cover the penalties may be left with no option but to exit the Australian market, risking a weakening of competition again to the detriment of Australian consumers,” the company said in a statement.

Since then, revisions have been made to the legislation, including key concessions to placate carmakers.

In response to the updated scheme, Toyota Australia sales, marketing and franchise operations vice-president, Sean Hanley, said big price rises in such a crowded market would be “fraught with danger”, after initially suggesting NVES penalties would be passed on to consumers.

Earlier this week he told CarExpert: “Australia is already one of the most saturated markets in the world, so with that in mind, it’s not as easy as saying ‘let’s increase prices to offset the penalties’.

“The market is so competitive that you may not be able to do that. You never rule that prices may need to rise at some point, but that would be a last resort.”

Toyota Australia’s chief salesperson also called for a delayed rollout of the NVES timeline, and said that whatever the outcome the brand’s most popular models would need to electrify, potential adding cost for consumers.

“As we progress into the NVES, it will become incredibly challenging – particularly for heavier vehicles: Prado, HiLux, LandCruiser,” Mr Hanley said.

“It’s incumbent on us to consider what technologies we bring to market, particularly between now and 2028.

“Let me be very clear. We will not be dropping LandCruiser, we will not be dropping Prado, we will not be dropping HiLux. What we will be trying to do is offset any penalties we get with EVs, hybrids and any technologies we have on the horizon. The mix will be really important.”

Will the NVES apply to used cars? And will I be forced to buy a new car?

The NVES has no direct ramifications for used cars, although the second-hand market could be exposed to flow-on effects from the legislation.

If manufacturers elect to build NVES fines into new vehicle pricing, those prices will eventually flow down to the used market, and more consumers may be pushed towards used vehicles, increasing demand and in turn prices.

But although the new emissions scheme aims to accelerate a shift towards increasingly efficient vehicles, it doesn’t place any pressure on individuals to purchase a new, low-emissions car.

Will the NVES make fuel more expensive?

No. Despite the nature of the NVES legislation, it won’t have any impact on the price of petrol and diesel in Australia.

Conversely, the Australian Government claims that by encouraging the transition towards cleaner, greener vehicles, the NVES will reduce the burden of fuel expenditure for new car buyers.

Is the NVES here to stay? Or could a new government scrap the legislation?

A federal election is on the way, and recent reports suggest prime minister Anthony Albanese could go to the polls as soon as April. So, what happens if the anti-NVES Liberal party is voted into power?

The Coalition cannot scrap the legislation, nor make the emissions targets over the 2025-2029 period less stringent.

But it could make changes to the fines carmakers pay for exceeding the limits, or adjustments to the weight ratings that define Type 1 and 2 vehicles, and it would need to decide on CO2 targets for 2030 onwards.

“The Coalition will not be Labor-lite. We won’t have a softer version of what Labor’s proposing,” opposition leader Peter Dutton reportedly told his party room back in March.

MORE: All our coverage on the New Vehicle Efficiency Standard