NVES explained: Everything you need to know about Australia's new vehicle emissions rules

12/31/2024 05:00 PM

The Australian new-car market is preparing to undergo one of its most significant transformations since the first Holden rolled off the assembly line in 1948.

This year Australia will mandate strict new-vehicle emissions standards similar to those in Europe or the US, which will issue credits – or monetary fines – to car manufacturers based on the CO2 emissions of every new car they sell.

Known as the New Vehicle Efficiency Standard (NVES), the rules come into effect today, 1 January 2025 – but lawmakers do not start the count until 1 July 2025.

While penalties will be issued directly to vehicle manufacturers, leading car brands have indicated the NVES will make its mark on the types of cars consumers will be able to buy – and how much they will cost.

Some car makers have signalled an intention to pass fines onto consumers – while others have indicated dirtier petrol and diesel models in their line-ups may meet the axe to ensure average emissions across their showrooms do not tip over the target.

If car makers cannot balance out high-pollution vehicles with low-emission models, they risk hefty fines that come 2029 – as the standards become stricter each year – could amount to as much as $25,000 on the largest utes and 4WDs.

Here's everything you need to know about the New Vehicle Efficiency Standard (NVES).

What is the NVES?

The New Vehicle Efficiency Standard (NVES) sets CO2 tailpipe emissions targets for new passenger and light-commercial vehicles sold in Australia, which manufacturers must achieve on average across their line-ups to avoid paying fines to the government.

Car makers can continue to sell high-emissions vehicles which do not meet the targets – such as diesel utes and 4WDs – but they are required to offset them with sales of low-emissions vehicles which beat the targets, which may include hybrid or electric cars.

Not all types of vehicles sold by a manufacturer must conform to the same target. Heavier passenger cars – or utes, vans and 4x4s considered to be light-commercial vehicles – are allowed to hit less stringent limits than smaller, lighter hatchbacks and family SUVs.

Each year, the lab-tested CO2 emissions of each new vehicle imported by a car maker over the 12-month period – and how that compares to that vehicle's target – will be added up by the Federal Government.

Car makers which – all vehicles considered – meet the target will be issued credits, known as 'units', which are valid for three years.

Car makers which do not meet the targets – and which have an 'interim emissions value' above zero, in government parlance – are given approximately three years to lower their number.

This can be done by meeting their targets in the following year, and using the units accrued to lower their emissions value in the prior year – or by purchasing units from other car makers who have met the targets.

If a car maker cannot lower its interim emissions value for a given year to zero or less, it will be fined by the Federal Government at an indexed rate of $100 per gram per kilometre of CO2 each vehicle sold is over the limit.

We'll go into more depth on what that means later in this story, but although they may sound small, the fines can add up very quickly.

Does Australia already have vehicle emissions standards?

Australia already has limits on the amount of greenhouse gases new vehicles sold locally can emit, but they are out of date – about 15 years behind Europe – and do not penalise manufacturers for the types of high- and low-emissions vehicles they sell.

The NVES is designed to address this. Vehicle emissions targets – which require car makers to offset polluting vehicles with more frugal ones to avoid paying fines – have been in force in Europe and the US for many years, but have never been in place in Australia.

To put it another way: the emissions rules in place in Australia until now are the equivalent of being forced to order a small chips from a fast-food restaurant, rather than a large chips.

The NVES is the equivalent of going a step further, ensuring every serving of chips you order is sold with a salad. There's nothing stopping you eating junk food, but it needs to be balanced out by healthier foods.

While we're here: the stringency of the tailpipe emissions standards – those which dictate how clean engines must be – previously in place in Australia are also planned to be uprated to match those in Europe. Click here for more details.

Will the NVES ban certain types of cars?

Not directly, no – but manufacturers who cannot offset their less efficient cars with more efficient ones may be required to take certain models off sale to avoid fines.

The New Vehicle Efficiency Standard does not ban the sale of any type of vehicle, nor does it impose fines purely for selling a particular type of car – for example, a ute, van or large four-wheel-drive SUV.

All it does is impose CO2 emissions targets for each class of passenger and light-commercial vehicle – and it is the responsibility of the car manufacturer to meet them.

While some car brands specialising in hybrid or electric cars may meet the targets without issue, others – which sell a large number of high-pollution commercial vehicles, but few hybrid or electric cars – may not.

These brands can choose to maintain their current showroom line-up and accept they will pay hefty fines – but car makers are in business to make money, not lose money.

It may mean that some high-emissions models may be dropped to ensure their CO2 emissions at the end of the year doesn't tip into the red – even if they are popular cars.

Will the NVES increase car prices?

The NVES does not mandate the prices of new cars, and the fines handed out by the Federal Government for manufacturers that don't meet the targets are issued to car makers, not customers.

However, a number of top-selling car makers have already admitted they will need to pass any potential fines they are hit with onto the consumer in the form of vehicle price rises.

As mentioned above, car companies are in business to make money – and paying government fines hurts their profit margins, or could see them lose money.

One option to keep high-pollution vehicles on sale is to pass NVES emissions fines onto the customer in partiality – or their entirety – as a price rise at the point of sale. It makes vehicles less attainable for customers, but those that can afford them can still buy one, and the car maker can continue to turn a profit.

Increasing prices will likely have the side effect of reducing sales, which in turn lowers the fines paid by the manufacturer on sales of that vehicle – making the NVES targets easier to achieve.

MORE: Toyota 4WD, ute customers to foot the bill for fines under new Australian emissions targets

Is the NVES a ute tax?

The Federal Opposition has repeatedly labelled the Federal Government's NVES policy a 'ute tax', citing claims it will overnight increase the prices of some cars by $25,000.

As mentioned above, the NVES is not targeted at a particular type of vehicle, and is not intended to ban the sale of cars Australians want to buy.

While prices of utes may increase under the policy – if car makers are unable to meet the targets, and choose to pass on fines to customers – plenty of popular family SUVs with older, relatively inefficient engines will also fall short of their targets.

Much of the modelling on potential new-car price rises presented by the Federal Opposition was collated by a lobby group for new vehicle manufacturers – many of which do not sell any electric cars – and has been debunked as 'misleading' by other firms.

MORE: Car industry body accused of ‘misleading’ on cost of new-car emissions targets to buyers

Does the NVES affect used cars? Will I need to pay more for a used car?

No, the New Vehicle Efficiency Standard does not apply to used vehicles.

Only passenger and light-commercial vehicles entered into the Register of Approved Vehicles, the database for every new car imported into Australia for sale, from 1 July 2025 counts towards a manufacturer's total.

And it is only vehicles approved for sale in Australia under a 'type approval' – which is the pathway major car makers use to sell masses of vehicles locally – are included, meaning private imports (known as 'concessional') are exempt.

Given fines are handed to vehicle manufacturers – and it is up to them if the new-vehicle consumer is required to wear some of the cost – it is not possible for the government to force a fine upon the buyer of a used car in a private or dealership sale.

Which types of vehicles are included under the NVES?

The New Vehicle Efficiency Standard covers all new passenger and light-commercial vehicles with a gross vehicle mass (GVM) – the maximum permissible weight of the vehicle with passengers, cargo and fluids on board – of 4500kg or less.

It is also the limit for what can be driven on a regular car licence in most of Australia, so most four-wheeled vehicles on sale short of a box truck or semi-trailer.

This includes everything from hatchbacks such as the Suzuki Swift and Hyundai i30, and family SUVs such as the Toyota Kluger and Hyundai Santa Fe, to vans such as the Toyota HiAce and Ford Transit Custom, and top-selling utes such as the Ford Ranger and Isuzu D-Max.

Full-size US pick-ups like Ram models, Chevrolet Silverado, Toyota Tundra and Ford F-150 are included, including the largest '2500' and '3500' class heavy-duty versions – provided they have a GVM of 4500kg or less.

The vehicles included under the NVES are split into two categories – Type 1 and Type 2 – the latter with less stringent emissions targets than the former.

Type 1 vehicles include traditional passenger cars (hatchbacks, sedans, wagons, coupes, convertibles, people movers, etc) and SUVs, from the Toyota Corolla to the Hyundai Palisade.

Type 2 vehicles include light-commercial vehicles, such as utes and vans, as well as what are considered "heavy off-road passenger vehicles", government speak for heavy-duty four-wheel-drive SUVs that meet select criteria.

The definition for a "heavy off-road passenger vehicle" is an 'MC' class vehicle – effectively large four-wheel-drive SUVs – with a braked towing capacity of 3000kg or more, and a 'body-on-frame' chassis.

It covers the likes of the Toyota LandCruiser, Nissan Patrol, Ford Everest and Toyota Prado, but not car-derived ‘monocoque’ SUVs such as the Toyota Kluger or Kia Sorento.

Vehicles must meet all of these criteria to be eligible for this classification. For example, the petrol GWM Tank 300 and Suzuki Jimny are body-on-frame SUVs, but they cannot tow at least 3000kg – while the Volkswagen Touareg and Land Rover Defender can tow more than three tonnes, but are monocoque not body-on-frame models.

What are the emissions targets set by the NVES?

The Federal Government has set ‘headline’ CO2 emissions limits for each category – Type 1 and Type 2 – which will become more stringent on 1 January each year under the NVES.

For 2025, the Type 1 limit is 141 grams per kilometre (g/km), while the Type 2 limit is 210g/km.

Come 2029 – the latest limits outlined by regulators, as only the first five years of CO2 targets have been set in stone this early – the Type 1 limit is 58g/km, and the Type 2 limit is 110g/km.

These CO2 figures are ‘headline’ targets, as they will be adjusted up or down to account for a vehicle’s weight, as a big Toyota Kluger SUV will naturally require more petrol than a tiny Toyota Yaris hatchback.

It means lighter cars will attract more stringent targets, while heavier ones will have a higher target – but the Government will set ‘break points’ to prevent how far the adjustment can go to ensure vehicles don’t have an overly easy or difficult time.

For example, the CO2 target for Type 1 passenger cars is adjusted for vehicle weights between 1500kg and 2200kg – so a 1000kg car will have the same target as a 1500kg one, while a 2500kg car will have the same target as a 2200kg car.

For the light commercial vehicle and off-road SUV category – Type 2 – the weight adjustment takes place between 1500kg and 2400kg, acknowledging that most large utes and 4WDs weigh more than 2200kg.

What it means is that, while at face value a vehicle like a Nissan Qashqai petrol SUV meets the targets – as it emits 138g/km of CO2 against a 141g/km headline limit – because it weighs about 1550kg, its target is in fact approximately 130g/km, and it will face fines.

For those wondering: the headline limits are based on an average mass of new-vehicles sold in each category the prior year.

For 2025, the headline targets apply to a vehicle weighing 1723kg in Type 1 and 2155kg in Type 2 – so the CO2 limits drop for vehicles lighter than those ‘reference’ masses, and increase for those heavier.

Weights are based on a vehicle’s Mass In Running Order, which is the car plus a full tank of fuel, and all fluids.

How hard are the NVES targets to hit?

For some car brands with a range of petrol, hybrid and electric vehicles, the New Vehicle Efficiency Standard targets for 2025 will be achievable – but by 2029, unless they drive down their average emissions, few will manage to stay above water.

In 2025, a Toyota RAV4 Hybrid Cruiser emits 107g/km against a weight-adjusted target of 144g/km, a Suzuki Swift Hybrid automatic emits 90g/km against a 126g/km target, and a Hyundai Santa Fe Hybrid Highlander emits 128g/km against a 171g/km target.

Among utes, a Ford Ranger Wildtrak bi-turbo emits 189g/km against a 218g/km target – so it is in the black in 2025 – but the V6 emits 222g/km, so it is not.

Many popular models do not meet the targets in 2025, however.

A Mazda CX-5 Akera turbo-petrol emits 191g/km against a target of 148g/km – translating to penalties equivalent to a $4300 fine – while a Toyota LandCruiser turbo-diesel V6 emits 235g/km against a 218g/km target.

Some vehicles have it even worse – a Nissan Patrol V8 belches out 334g/km against a 218g/km target, equating to a whopping $11,600 fine for the car maker if that was the only car Nissan sold in 2025.

By 2029, it will be a very different story. Even a Toyota RAV4 Hybrid would fall foul of the targets by that date, and a Ford Ranger XLT bi-turbo would earn its maker a fine equivalent to $7300, rather than a $2700 ‘credit’.

How much are the NVES fines? Does the car maker pay, or do I?

As mentioned, the Federal Government fines car manufacturers, rather than the consumer – but the former may elect to pass part or all of the fine on in the form of price rises on its vehicles.

It must be clarified at this point that car brands are not immediately fined every time they sell a vehicle that exceeds the CO2 targets, nor does the government pay car brands if they sell a vehicle that meets the limits.

Instead, car brands are fined – or awarded ‘credits’ – based on the sum of every car brought into Australia by a brand in a given year contributes to a tally.

These penalties are not paid immediately, instead car makers are given about two more years offset any fines they accumulated in a given year.

It means that if a car maker finds itself in the red in 2025, but earned credits in 2026, it can use those to offset any fines it may be about to pay for 2025, and remain in the black.

And it is also worth noting a manufacturer’s performance under NVES is measured when each vehicle they bring to Australia is registered into the Federal Government’s Register of Approved Vehicles, rather than at the point at sale, which could be many months later.

Industry experts have warned it could see car brands rush to import their dirtiest cars between 1 January and 30 June 2025 – before the government begins taking count – and sell them over the next 12 to 18 months without contributing to their emissions average.

The baseline penalty is set at $100 per gram-per-kilometre over the target – per vehicle sold.

By the time car brands come to pay any fines – which, for 2025, will be in 2029 – the penalty amount will be ‘indexed’ and increased based on the all-groups Consumer Price Index (CPI).

To put this in context, let’s assume for example purposes there is no indexing based on CPI, and that the penalty remains $100 per gram, per vehicle.

For example, if Brand X imported 10,000 cars in a given year which exceeded their CO2 targets by 10g/km, and 5000 cars which beat their targets by 20g/km, the two vehicle lines would cancel out – and they would be left with no fines to pay, nor any credits to bank.

In contrast, if Brand Y imported 50,000 cars in a year which exceeded their targets by 20g/km, and 100,000 cars which beat their targets by 5g/km, they would be left with a $50 million fine to pay – or cancel out – as the cars they sold that didn’t meet the target were not offset by those that did.

It is expected car brands under the same importer – for example Volkswagen, Skoda and Cupra, which are sold locally through the factory-backed Volkswagen Group Australia operation – will pool their vehicle fleets, but this may differ by car brand and group.

There will be a Federal Election soon. Could a new government overturn NVES?

Australian are set to head to the polls in the coming months, adding a layer of uncertainty to the rollout of the NVES.

If the Federal Opposition is elected, there is every chance it could rush through changes to the policy before manufacturers’ vehicle imports begin to be tracked from 1 July – but given the NVES policy came into force on 1 January, it would not be an easy process.

The party in power need to eventually rule on the headline CO2 emissions targets in force from 2030.

The Minister for Infrastructure, Transport, Regional Development and Local Government in power at any given time has the ability – pending a consultation period with the public – to change the headline targets.

However, the legislation says can only make the targets more stringent, not the other way around – and it must be done at least two years in advance.

It is understood a new Federal Government could change other parts of the policy – such as how the vehicle mass adjustment occurs, or the $100 baseline fine car brands pay.

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