Explained: Why fuel efficiency standards in Australia are expected to reduce costs for car owners
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How much “lead” time when implementing vehicle efficiency standards in import markets?
When vehicle fuel efficiency or carbon dioxide (CO2) standards are adopted for the first time in a region, the auto industry seeks lead time before they are implemented. How can we understand how much of this time is necessary?
The United States and European Union pioneered the early phases of fuel efficiency or CO2 standards decades ago for passenger cars and light commercial vehicles. These have, over various stringency stages, spurred the development of new fuel-saving, emissions-reducing technologies, and the United States and European Union granted manufacturers at least 3 years between adoption and implementation of those standards. The time allowed automakers to introduce new technologies in their fleets and change production lines gradually to meet the standards.
The situation is quite different for import markets, though, because they are technology followers. And it’s especially different when it comes to first-time standards that are far less stringent than standards in leading vehicle-producing, regulated markets today. The figures below illustrate that the CO2 standards for import-based markets Australia, Chile, and New Zealand are much less stringent than those in the United States and European Union.
Indeed, because the United States and the European Union adopted standards decades ago, vehicle technologies that meet “beginner” efficiency standards are already widely available today. Such technologies have been produced for years at commercial scale to meet demand in the global market and are now much cheaper than they were previously. That means it’s easier for importers today to quickly shift their fleets to meet the standards and there can be shorter lead times than in the past.
Figure 1. Global CO2 standards for passenger cars, in g CO2/km emissions equivalent on the Worldwide harmonized Light vehicles Test Procedure (WLTP)
Figure 2. Global CO2 standards for light commercial vehicles, in g CO2/km emissions equivalent on the WLTP
Indeed, recent experience in New Zealand and Australia demonstrate how importers can quickly switch to a high-efficiency fleet to respond to newly adopted standards. New Zealand implemented its first CO2 standards for passenger cars and light commercial vehicles in fewer than 12 months: the Clean Vehicle Standard was adopted in February 2022 and the annual CO2 targets applied beginning in January 2023. Australia adopted its first CO2 regulation for passenger cars and light commercial vehicles at the end of May 2024 and the annual targets took effect at the start of January 2025; they include a 6-month allowance for importers before non-compliance penalties apply, thus extending the lead time to 1 year and 1 month.
In Chile, it has been different. After adopting its first energy efficiency standards for passenger cars in 2022, compliance was required beginning 2 years later, in 2024, and the targets become more stringent every 3 years. Chile will also implement its first targets for light commercial vehicles in 2026, after a lead time of 2 years from 2024, the year of adoption; these targets also last for 3 years. I highlight the shorter lead times in Australia and New Zealand because their targets are generally more stringent than Chile’s when converted to g CO2/km on the Worldwide harmonized Light vehicles Test Procedure and they tighten annually, instead of every 3 years.
As more time passes between standard adoption and implementation, there are additional fuel costs borne by consumers (during the additional years before more fuel-efficient vehicles are introduced in the market). Longer delays before implementation mean consumers can’t capture the benefits of the latest, widely available vehicle technology. Such benefits are especially impactful for consumers because fuel cost savings are typically the largest component of the various benefits from less-emitting, fuel-efficient vehicles. As just one example, Australia’s regulatory impact analysis estimated that from 2025–2050, the total benefits of the CO2 standards will be A$126.6 billion, more than three times larger than the total cost of compliance; this includes A$95 billion in fuel savings for consumers and A$5 billion in public health benefits. The standards are estimated to save nearly A$1,000 in fuel costs per new car in 2029 compared with a new car in 2024.
Delaying standards also leads to higher total cost of ownership per vehicle (due to higher lifetime fuel costs), higher national CO2 emissions and energy/fuel consumption, and potentially missing any targets for national decarbonization in the long term. That doesn’t seem like a good trade-off, does it?
Author
Tanzila Khan
Researcher
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Explained: Why fuel efficiency standards in Australia are expected to reduce costs for car owners
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