This is a revised version of the Digest published on 9 May 2024.

Purpose and structure of the Bills

The New Vehicle Efficiency Standard Bill 2024 (NVES Bill) establishes a New Vehicle Efficiency Standard (NVES) to regulate carbon dioxide (CO₂) emissions from new passenger and light commercial vehicles.

The Bill contains 6 parts:

• Part 1—Preliminary sets out the objects of the Act, application provisions, the constitutional basis of the Act, and definitions
• Part 2—New vehicle efficiency standard establishes the NVES, including key parameters of the standard (such as covered vehicles and the determination of the interim and final emissions value), sets the headline limit for the first five years, provides for key parameters (including the headline limit, mass adjustment factor, mass in running order (MIRO) and breakpoints) to be determined by the Minister in a legislative instrument, and sets out the process for the Minister to make a determination (including consultation requirements)
• Part 3—Units issued in respect of covered vehicles provides for the Secretary to issue units to a person whose interim emissions value is less than zero, for adjustments to the number of units issued, the extinguishment and transfer of units; units are personal property and are extinguished 3 years after the date of issue if not extinguished earlier
• Part 4—The Registry establishes the New Vehicle Efficiency Standard Registry (the Registry) and provides for the opening and closing of accounts and the transmission of units, the correction of errors and rectification of entries, establishes offences and civil penalty provisions relating to the Registry, and provides for matters relating to the Registry to be provided in the rules
• Part 5—Compliance and enforcement applies the Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act) with some modifications, to provide for monitoring powers, investigation powers, civil penalties, infringement notices, and enforceable undertakings; it also provides for the appointment of inspectors, the provision of information to the Secretary, and for a court to make adverse publicity orders and non-punitive orders
• Part 6—Miscellaneous deals with a range of matters, including publication and sharing of information, delegation of the Secretary’s functions and powers, reviewable matters, indexation of the penalty amount, the making of rules, and a statutory review of the Act.

The New Vehicle Efficiency Standard (Consequential Amendments) Bill 2024 (Consequential Amendments Bill) amends the Clean Energy Regulator Act 2011 (CER Act) and the Road Vehicle Standards Act 2018 (RVS Act) to enable the efficient implementation of the NVES.

The Consequential Amendments Bill has 1 Schedule:

• Items 1 and 2 amend the CER Act to specify that the New Vehicle Efficiency Standard Act 2024 is a climate change law and enable the Clean Energy Regulator (CER) to perform functions conferred on it in accordance with that Act
• Items 3 and 4 amend the RVS Act to provide that the provisions of Division 4 of Part 4 of the NVES Bill (which deal with offences and civil penalties related to the operation of the Registry) are ‘related provisions’ for the purposes of the exercise of monitoring powers and investigation powers under the RVS Act
• Items 5 and 6 amend the RVS Act to insert proposed Division 5A to Part 4 of that Act, allowing a court to issue non-punitive orders upon a person who has contravened Part 2 of the RVS Act (relating to the registration of vehicles and road vehicle components).

Background

Contribution of the transport sector to Australia’s emissions and the need for a vehicle efficiency standard

In the year to September 2023, road transport contributed 97.3 million tonnes (Mt) of carbon dioxide equivalent (CO₂-e) or 21.17% of national emissions.[1] Emissions from the sector have increased by 18.6% since 2005.[2] Around 60% of transport emissions come from passenger cars, light commercial vehicles, and motorcycles.[3]

The most recent government projections indicate that emissions from the transport sector (in total) are estimated to reach 102.0 Mt by 2030, before declining to 95 Mt in 2035, under a baseline scenario.[4] The government has projected that under a ‘with additional measures’ scenario, incorporating the measures outlined in the National Electric Vehicle Strategy and including a new vehicle efficiency standard (NVES), emissions will decrease to 94 Mt in 2030 and 80 Mt in 2035 (18% lower than in 2023).[5]

Australia is one of the few major global economies that doesn’t have a vehicle efficiency standard (VES).[6] Concerns have been raised by a broad range of stakeholders over a long period of time that the absence of a VES in Australia is a major barrier to the introduction of low and zero emissions vehicles to the Australian market. According to analysis commissioned by the Electric Vehicle Council (EVC) and Climate Council,

In 2022, new vehicles sold in Australia were producing up to 1.5 times more carbon dioxide relative to our global peers. This gap was the largest for passenger vehicles, where new vehicles in Australia produced 1.5 times more carbon dioxide relative to the EU. For light commercial vehicles, Australia is still far behind, with new vehicles producing 1.4 times more carbon dioxide relative to the EU.[7]

Of the 21.2 million registered vehicles in Australia at the end of January 2023, 20.2 million were passenger vehicles, light commercial vehicles and motorcycles.[8] Battery and fuel-cell electric vehicles (BEVs and FCEVs) and hybrid electric vehicles (HEVs) make up a small proportion of these vehicles.[9] However, there was a 114% increase in the number of registered passenger BEVs during 2022–2023.[10]

History of a vehicle efficiency standard in Australia

As noted above, Australia does not currently have a vehicle efficiency standard. Since 2008, vehicle manufactures have been required to provide information about a vehicle’s fuel or energy consumption and carbon dioxide emissions to consumers at the first point-of-sale.[12]

A detailed chronology of the past efforts to establish a VES is provided in the Parliamentary Library publication Developments in Australian fuel quality and vehicle emissions standards: a chronology.

Key events include:

• a March 2009 report by the Australian Transport Council and the Environment Protection and Heritage Council finding a prima facie case for introducing mandatory CO₂ emissions standards
• a July 2009 agreement of the Council of Australian Governments (COAG) in the National Strategy on Energy Efficiency to undertake a regulatory impact analysis for introducing CO₂ emissions standards for light vehicles
• a July 2010 commitment of the Gillard Government to introduce mandatory CO₂ emissions standards for all new light vehicles from 2015
• in 2011, the release of a discussion paper on light vehicle CO₂ emission standards
• in June 2014, a recommendation of the Climate Change Authority to introduce a target to reduce the emissions intensity of the Australian light vehicle fleet from its 2013 level of 192 gCO₂/km to 105 gCO₂/km by 2025
• in October 2015, the establishment of the Ministerial Forum on Vehicle Emissions to ‘coordinate a whole-of-government approach to addressing emissions from road vehicles’
• in February 2016, the release of a Vehicle emissions discussion paper, noting the need for a standards regime for fuel efficiency
• in December 2016, the release of a draft Regulation Impact Statement on Improving the efficiency of new light vehicles
• in January 2019, a recommendation of the Senate Select Committee on Electric Vehicles’ inquiry into the use and manufacture of electric vehicles to establish a new CO₂ standard
• in July 2020, the introduction of an industry-led voluntary vehicle CO₂ emissions reduction standard.

Albanese Government’s efforts to establish a vehicle efficiency standard

National Electric Vehicle Strategy

On 19 August 2022, the Minister for Climate Change and Energy, Chris Bowen, and the Minister for Transport, Catherine King, jointly announced the release of a discussion paper on a National Electric Vehicle Strategy. The Ministers said:

We believe that now is the time to have an orderly and sensible discussion about whether vehicle fuel efficiency standards could help improve the supply of electric vehicles into the Australian market to address the cost-of-living impacts of inefficient cars, and to reduce emissions from the transport sector.[13]

A Consultation Paper was released on 28 September 2022. The Consultation Paper states that ‘combining fuel quality, light vehicle noxious emissions standards and vehicle fuel efficiency standards … would help Australia have a cleaner fleet by the 2030s’.[14] The Consultation Paper notes:

Vehicle fuel efficiency standards need to be:

 Effective in reducing transport emissions

 Equitable so all Australians can access the vehicles they need for work and leisure

 Transparent and well explained to avoid unintended consequences

 Credible and robust by drawing on expert analysis and experience

 Enable vehicles with the best emissions and safety technology to be available to Australians.[15]

The Consultation Paper sought views on:

• whether fuel efficiency standards (FES) were an effective mechanism to reduce passenger and light commercial fleet emissions
• whether FES would incentivise global manufacturers to send electric vehicles (EVs) and lower emissions vehicles to Australia
• whether FES would be an appropriate mechanism to increase the supply of heavy vehicle classes to Australia
• what design features should be considered in more detail, including the level of ambition, who should they apply to, commencement date, penalties and enforcement.[16]

The Consultation Paper received ‘over 500 submissions from more than 200 organisations and over 1,500 individuals’.[17] Only 447 of these are publicly available.

On 19 April 2023, the Ministers jointly released the National Electric Vehicle Strategy. The Strategy includes a commitment to developing a FES for Australia.

Consultation on vehicle efficiency standards

Also on 19 April 2023, the Ministers jointly announced the release of The Fuel Efficiency Standard: Cleaner, Cheaper to Run Cars for Australia: Consultation Paper (FES Consultation Paper) and accompanying fact sheet for FES. The Minister for Transport said that the further consultation was required in relation to the technical details of the standards.[18]

The Department’s design assumptions state that the FES would apply only to new vehicles entering the market for the first time, apply on average to vehicles sold, apply only to light vehicles (thus excluding motorcycles, heavy vehicles, law enforcement and emergency service vehicles), apply to vehicle suppliers (not motor vehicle dealers), and will ‘consider vehicle affordability, lifetime cost and model availability’.[19]

The FES Consultation Paper sought views on a range of technical issues including:

• the average annual emissions ceiling (in gCO₂/km), including how far into the future ceilings are set, the rate of decline, and how the ceiling might be adjusted
• the emission limit curve, and whether this should be mass-based or footprint-based
• whether separate targets should be set for different vehicle classes (that is, light passenger vehicles and heavy SUVs and light commercial vehicles)
• whether additional flexibility mechanisms should be included, such as allowing suppliers to form pools, provision of credits which can be sold or banked for future use, provision of ‘bonus credits’ for the adoption of new or innovative technologies that reduce emissions and/or ‘super credits’ as a multiplier for LZEVs, and provision for ‘off-cycle credits’
• commencement of the scheme
• the application and level of penalties for non-compliance and enforcement mechanisms, including exemptions for small volume and niche manufacturers
• information disclosure requirements
• governance arrangements, including an appropriate regulator (proposed to be the DITRDCA), identification of the appropriate ‘regulated entity’, the application of regulatory powers and, cost recovery.

On 25 August 2023, the Ministers jointly announced that submissions to the FES Consultation Paper ‘overwhelmingly support the introduction of a FES, which is expected to boost local access to cheaper-to-run cars that are also cleaner for the environment’.[20] The Minsters’ media release states ‘the submissions are now informing an impact analysis and our preferred model which will be released before the end of the year’.[21] Around 1,200 submissions were publicly released. A majority of these are short comments or form letters.

On 21 December 2023, the Ministers jointly announced changes to fuel quality standards and noxious emissions standards. The package includes ‘a new laboratory test for fuel consumption and CO₂ emissions’ and new requirements for fuel consumption labelling. The legislative instruments implementing these reforms were registered in April 2024.[22]

Further consultation on the Australian New Vehicle Efficiency Standard

On 4 February 2024, the Ministers jointly announced the release of the Cleaner, Cheaper to Run Cars: The Australian New Vehicle Efficiency Standard: Consultation Impact Analysis. The Consultation Impact Analysis outlines 3 options for the introduction of a new vehicle efficiency standard. The Consultation Impact Analysis identifies ‘Option B’ as the government’s preferred option. Key elements of this option include:

• ‘a strong, ambitious, and achievable NVES that seeks to catch up with the US around 2028 and then match the stringency of these standards … Two CO₂ targets, one for passenger vehicles and SUVs, and a higher target for utes and vans (including large pick-ups) in the light commercial vehicle category’
• a limit curve and reference mass derived based on the fleet of vehicles sold in 2022 and updated on a rolling basis, and break points for passenger vehicles (PV) and light commercial vehicles (LCV)
• vehicle manufacturers would be able to bank credits (earned by achieving a lower emissions target than that calculated for the vehicle manufacturer) and trade credits with other vehicle manufacturers, but would not be able to form pools with other vehicle manufacturers
• super-credits, off-cycle credits and air conditioning credits would not be available to ‘maximise simplicity and transparency’
• vehicle manufacturers would face a penalty of $100 for each gram per kilometre (g/km) of CO₂ that exceeded that vehicle manufacturer’s target.[23]

The Ministers said the proposed standard ‘will deliver more vehicles to Australia with the latest engine and design technologies to ensure lower fuel bills, meaning bigger savings at the petrol pump’.[24] The Consultation Impact Analysis estimated that Australians would collectively save $107.6 billion in fuel costs out to 2050.[25]

Announcement of the New Vehicle Efficiency Standard

On 26 March 2024, the Ministers jointly announced the finalised design parameters of the NVES, alongside representatives from key automotive and electric vehicle bodies. Minister King described the NVES as ‘an Australian standard for Australian consumers and Australian conditions’.[26] The revised arrangements include:

• re-categorising some large 4WDs from passenger cars to light commercial vehicles[27]
• smoothing the emissions trajectory for light commercial vehicles
• adjusting the weight-based relative emissions limits (referred to as ‘break points’)
• staging implementation to enable preparation and testing of essential data reporting capabilities, so that the scheme will commence on 1 January 2025, but compliance requirements will not commence until 1 July 2025.[28]

The Minister for Transport introduced the Bills to the House of Representatives the next day.[29] A revised Impact Analysis was also released by the Office of Impact Analysis. The Impact Analysis states:

[The best] option is estimated to deliver abatement of 20Mt to 2030, 80 Mt to 2035, and 321 million tonnes of CO₂ by 2050 … Australians will accrue around $86.04 billion in net benefits out to 2050, including over $95 billion in fuel savings to 2050 for everyday Australians.[30]

Committee consideration

House of Representatives

A Coalition proposal to refer the Bills to the Standing Committee on Regional Development, Infrastructure and Transport was unsuccessful.[31]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Senate Standing Committee for the Scrutiny of Bills is yet to consider the Bills.

Policy position of non-government parties/independents

Australian Greens

The Leader of the Australian Greens, Adam Bandt MP, said in response to the release of the government’s National Electric Vehicle Strategy, ‘the government needs to set electric vehicle targets and get moving on implementing strong fuel efficiency standards’.[32] On the release of the Consultation Impact Analysis, Mr Bandt said:

We’re glad Labor is finally taking its foot off the brake, but now we need action to ensure that we get electric vehicles on our roads, and that they’re affordable for everyone in this country.[33]

House Independents and Crossbench Senators

Independents Kate Chaney, Zoe Daniel, Monique Ryan, Sophie Scamps, Allegra Spender, Zali Steggall and Kylea Tink have all indicated support for a mandatory vehicle emissions standard.[34] Ms Spender, Ms Chaney and Senator David Pocock made individual submissions to the government’s FES Consultation Paper.[35]

On 27 February 2024, Independents Ms Tink, Dr Ryan, Ms Daniel, Ms Steggall, Ms Spender, Ms Chaney and Dr Scamps jointly ‘welcomed the Government’s proposed fuel efficiency standards and call[ed] on the Government not to back-slide on their commitment in the face of fierce lobbying from the fossil fuel car industry and Peter Dutton’s Liberal Party scare campaign’.[36] They called on the Government ‘not to compromise on the integrity of the scheme by introducing carve-outs and super credits that allow foreign car makers to continue dumping expensive and inefficient vehicles in Australia’.

Senator David Pocock has also welcomed the proposed introduction of the NVES but called on the government to bring forward their ‘commencement date of 1 July 2025 to at least the end of this year [2024]’.[37]

Liberal-National Coalition

Nationals Senator Bridget McKenzie has indicated that the Coalition ‘are absolutely committed to a low-emissions transport sector’.[38] Senator McKenzie said a fuel efficiency standard:

... needs to be something that's affordable for Australians. It needs to make sure that certain Australians aren't discriminated against over others - people in rural and regional Australia for instance, people on low incomes - and it needs to make sure that Australians still have the choice of vehicles what we enjoy today.[39]

Shadow spokesperson for Climate Change and Energy, Ted O’Brien MP, said the Coalition supported ‘next-generation clean technologies including EVs’, but added ‘genuine consumer choice for new vehicle and fuel technologies is key. We want to ensure Australian motorists can choose the vehicle that’s right for them – whether that’s electric, hybrid, petrol, diesel or hydrogen’.[40]

On the release of the Consultation Impact Analysis, Senator McKenzie and Mr O’Brien raised concerns about the cost of the vehicle efficiency standard, saying:

Fears from industry representatives … that the Government’s heavy-handed approach will drive utes off Australian roads is of deep concern to the Coalition which has always been on the side of more choice for consumers, not less.[41]

Position of major interest groups

This section provides a summary of views expressed in submissions to the Department’s FES Consultation Paper, statements made following the release of the Consultation Impact Analysis and views expressed in media reporting.

Consumer and health groups, and motoring organisations

Consumer and health groups strongly support the proposed NVES.[42] An expert position statement coordinated by Melbourne Climate Futures, and endorsed by the Australian Chronic Disease Prevention Alliance, stated that the impacts of traffic pollution include ‘premature deaths, a range of cardio-respiratory diseases including lung cancer, childhood asthma, adverse birth outcomes and diabetes’.[43] The statement noted that there were ‘no robust estimates for the health impacts in Australia’ but estimated that there were 11,105 premature adult deaths each year, based on modelling from New Zealand.

The Australian Council of Social Services supports the ‘rapid implementation of an ambitious FES’, arguing:

The design of fuel efficiency standards should aim to drive more affordable electric vehicles into the Australia car market, and should be accompanied by complementary measures to ensure people on low incomes or experiencing disadvantage are not left behind and can access electric vehicles and charging infrastructure sooner.[44]

In addition, motoring groups are broadly, although cautiously, supportive of the NVES.[45] Some special interest groups expressed a view that exemptions should be explored for particular vehicle categories.[46] The National Roads and Motorists Association (NRMA) has observed:

The economic and social opportunities associated with the transition to EVs extend far beyond light vehicle and the transport sector. Benefits associated with transitioning to EVs include reducing CO2 and noxious emissions, improving public health standards, lowering motoring costs, enhancing fuel and national security settings, and bolstering manufacturing and trade opportunities.[47]

Vehicle importers and manufacturers

Many importers and manufacturers were broadly supportive of the NVES as a technology-agnostic way of achieving emissions reductions.[48] However, they have also raised concerns about the scale of change required to meet the ambitious standard. For example, the Australian Automotive Dealer Association (AADA) said ‘on the surface this is an incredibly ambitious target which will be difficult to achieve especially for utes and large SUVs’.[49] Following the release of the finalised policy, the Motor Trades Association of Australia said:

In totality, the changes should benefit the Australian consumer – reducing the very real risk of price rises and reduced access to the vehicles they want and need – while placing the country on a CO₂ trajectory similar to other comparable nations.[50]

The Federal Chamber of Automotive Industries (FCAI) established a voluntary fuel efficiency standard in 2020 and has previously called on the government to introduce a mandatory standard.[51] However, the FCAI claimed that the effective cost of the policy would be ‘as high as $38 billion over the first five years’, albeit without factoring in any behaviour change or the availability of credits for LZEVs.[52] The FCAI has also warned of a potential spike in demand for high emissions vehicles ahead of the introduction of the proposed NVES.[53] The FCAI’s claims resulted in Tesla and Polestar withdrawing from the industry body.[54]

The positions of vehicle manufacturers are mixed, with varying views particularly in respect of the availability of flexibility mechanism such as multiplier, off-cycle and air-conditioning credits, the operation of credit banking and transfer mechanisms, and the availability of pooling.[55] More recently, Volkswagen and Hyundai are reported to support the standard,[56] while Toyota is reported to have said ‘the current NVES proposal is too ambitious, risks leaving thousands of Australians behind and must be better calibrated to the local market’.[57]

However, Toyota, Hyundai and Tesla were among those present as the Ministers announced the finalised policy. Toyota’s President and CEO, Matthew Callachor, indicated that the company supported the government’s amendments but noted ‘there still remains a very big challenge in achieving these ambitious numbers’.[58] Asked whether the policy was a tax, Mr Callachor said ‘no, the actual policy is directed at reducing overall emissions in the economy’.[59]

Environment and climate change advocacy groups

Environment and climate change advocacy groups strongly support the introduction of a robust vehicle efficiency standard.[60] The Australian Conservation Foundation and Australian Parents for Climate Action both argued that a standard should also apply to heavy vehicles such as buses and trucks, while the International Council on Clean Transportation argued that the standard should also be applied to used vehicles entering the Australian market and a separate standard for heavy-duty vehicles and motorcycles developed.[61]

The Climate Council argues that ‘an effective New Vehicle Efficiency Standard (NVES) will tackle … cost of living and pollution challenges together in a great two-for-one deal for Australians’.[62] It has however called on the government ‘to come up with other transport policies to keep Australia on track to hit our national emission reduction target’.[63]

Electric vehicle advocacy groups

Electric vehicle advocacy groups were strongly in support of the proposed standard;[64] for example, the Electric Vehicle Council said:

Australia finally has an opportunity to introduce a globally competitive NVES that can not only deliver significant reductions in transport costs and emissions for Australian households and businesses, but also foster the growth of local industry across the EV value chain, supporting jobs across mining, manufacturing, energy and recycling.[65]

The Australian Electric Vehicle Association cited ‘an unwillingness by some manufacturers to produce more low- and zero emissions vehicles across all segments’ as a reason that concessions and carveouts should not be provided.[66]

Financial implications

The Explanatory Memorandum states:

The Government committed $7.4 million in funding in the 2023–24 budget for the design, implementation and management of a new vehicle efficiency standard over 4 years. The resourcing needs for the administration of the new vehicle efficiency standard and the Registry are being considered in the 2024–25 Budget context.[67]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.[68]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights has considered the Bills and had no comment.[69]

Key issues and provisions

Key parameters of the New Vehicle Efficiency Standard

Part 2 of the NVES Bill establishes the key parameters for the NVES, as well as providing for these parameters to be amended by the Minister.

How does the standard work?

The RVS Act requires a person bringing new vehicles into the Australian market to first obtain a type approval or concessional RAV (Register of Approved Vehicles) entry approval for the vehicle before the vehicle can be registered in the Register of Approved Vehicles. This process requires the person to provide key data about a vehicle and evidence that the vehicle is compliant with applicable national road vehicle standards, including standards relating to noxious emissions, fuel consumption and fuel economy. The NVES draws on data recorded in the RAV, including the vehicle category, MIRO and gross vehicle mass (GVM).

The NVES applies only to covered vehicles, being new vehicles included in the RAV for the first time on or after 1 July 2025. These are divided into 2 categories (type 1 vehicle, type 2 vehicle), unless falling within the definition of an exempt vehicle.[70]

The type of vehicle is a critical component of the NVES because the 5 parameters set out in clauses 22 to 27, and used in the calculation of an emissions target for each vehicle in accordance with the formula in clause 21, vary depending on whether the vehicle is a type 1 vehicle or type 2 vehicle. Type 2 vehicles (larger, heavier vehicles) have less stringent emissions targets. The 5 parameters, and their interactions, are explained at pages 22 to 24 of the Explanatory Memorandum.

When finalising the design parameters of the NVES, the government decided to provide a mechanism for certain large sports utility vehicles (SUVs) or four-wheel drives (4WDs) to be classified as type 2 vehicles rather than type 1 vehicles. This is reflected in subclauses 13(1) and 14(1) and clause 15, which prescribe different treatment for light and heavy off-road passenger vehicles. Specifically, a heavy off-road passenger vehicle is defined as an MC (off-road passenger vehicle) vehicle, with a rated towing capacity of 3 tonnes or more, and a body on frame chassis (or as determined). Heavy off-road passenger vehicles are prescribed to be type 2 vehicles and therefore have less stringent emissions reduction targets.

Subclauses 13(2), 14(2) and paragraph 15(1)(c) would also allow a Minister to make determinations specifying that certain classes of vehicle (or vehicles with a particular chassis) are either type 1 or type 2 vehicles.

These adjustments to the final design of the NVES were perceived by some stakeholders as watering down or weakening the NVES.[71] For example, the provisions relating to heavy off-road passenger vehicles will see nearly 20% of these vehicles (based on 2022 sales data) moved from the type 1 vehicle to the type 2 vehicle category.[72] Economist John Quiggin has argued that Australia needs to wean itself off oversized vehicles that have shifted from ‘substance to  symbol’ in order to reduce ‘emissions from Australia’s polluting road transport sector’.[73]

How is compliance with the standard determined?

Clause 17 imposes a duty on a person to ensure that their final emissions value (FEV) is zero or less by the start of the final reconciliation day for the relevant year (being the third 1 February after the end of the relevant year). A person’s final emissions value is calculated as a person’s interim emissions value minus the number of units extinguished by the person for that year.[74] The interim emissions value is calculated in accordance with the formula set out in clause 19; it is calculated as a sum total for all vehicles (and variants thereof) across a person’s fleet.

Subclause 17(1) provides for a court to impose a maximum civil penalty of $100 for each CO₂ g/km of a person’s final emissions value (that is, 100 times the person’s FEV).

Under comparable schemes, and noting that the design parameters of these schemes vary, the applicable penalties are:

• in the European Union, €95 (A$157) for each excess CO₂ g/km (excess emission premium)[75]
• in the United States, US$17 (A$26.32) for each excess 0.1 mile per gallon (for each vehicle)[76]
• in New Zealand, from 2025, NZ$54–$67.50 (A$49–$61.90) for each used or new vehicle imported with a CO₂ value higher than the target.[77]

The Explanatory Memorandum explains:

Large civil penalties could arise under clause 17, but this would be proportionate to the number of covered vehicles provided by the person and the cost of improving light vehicle efficiency. It also reflects the potential adverse economic impacts of climate change, now and in the future, of CO₂ emissions on humans and ecosystems.[78]

However, as explained in more detail in the following sections,

• a person can reduce their final emissions value by surrendering units to the Secretary
• if a person’s FEV is greater than zero, an infringement officer (such as the Secretary) could elect to issue the person with an infringement notice rather than seeking a civil penalty in a court; in this case, the applicable penalty would be $50 for each CO₂ g/km.

Ministerial determinations: changes to key parameters of the NVES

The Bill allows the Minister to make determinations changing the key parameters of the NVES. The relevant provisions set out the circumstances in which a determination may be made, including a requirement for public consultation on a proposed determination, publication of a notice of reasons, and advance notice of the commencement of a determination.

Table 1 sets out the requirements relating to specific parameters.

Table 1 Permitted changes to key parameters

Notably, in relation to the setting of headline limits, the Explanatory Memorandum states:

The headline limits for 2025 to 2029 inclusive were determined using the New European Driving Cycle (NEDC) test cycle, as this is the test currently mandated in Australia to measure CO₂ emissions from light vehicles. However, a new Euro 6d noxious emission standard will be phased in for new light vehicles supplied from 2025 to 2028. This will mandate a more stringent test procedure (known as the WLTP [Worldwide harmonised Light vehicle Test Procedure]) to measure emissions from new vehicles and will require an increase in the headline limit to maintain an equivalent NVES.[80]

The WLTP provides a more accurate estimate of the noxious emissions and fuel economy than the NEDC. The government’s Impact Analysis suggests that the review of the NVES legislation may consider the use of the WLTP in determining the headline limits from 1 July 2028, as the use of the WLTP will be mandatory for all vehicles supplied to the Australian market from that time.[81]

In accordance with clause 33, before making a determination, the Minister:

• must consider the objects of the Act (as provided in clause 3)
• may consider any submissions received during a public consultation process in relation to a proposed determination (per clause 36) and any other matters the Minister considers relevant.

Prior to making a determination, the Minister must publish a notice of a proposed determination on the Department’s website and invite written submissions.[82] The minimum period of consultation varies depending on the subject matter of the determination. Submissions must then be published on the Department’s website.

If the Minister makes a determination, the Minister must publish a notice of reasons, including which submissions (if any) the Minister considered.[83]

While determinations, as disallowable legislative instruments, will be subject to scrutiny by the Parliament, these provisions provide the Minister with considerable discretion to significantly alter the scope and potential effectiveness of the proposed NVES. The Explanatory Memorandum suggests this ‘provides flexibility to account for the rapidly changing vehicle market’.[84] However, consideration could be given to whether it would be desirable for the Minister to be required to seek the advice of an independent body such as the Climate Change Authority before making certain determinations, such as the headline limits (and underlying parameters) beyond the introductory period.

Tradeable units and a New Vehicle Efficiency Standard Registry

Part 3 of the NVES Bill provides for units (equivalent to 1 CO₂ g/km) to be issued by the Secretary and for the transfer and extinguishment of these units. Units only exist in the electronic New Vehicle Efficiency Standard Unit Registry (Registry) which is established by Part 4 of the NVES Bill.

The Secretary must issue a person who has a registry account the relevant number of units if the person’s interim emissions value (IEV) for a year is less than zero.[85] The number of units that may be issued is equal to the absolute value of the person’s IEV.

Units are a form of personal property and may be dealt with by the person as they see fit.[86] For example, a person could sell units to another person with a registry account in accordance with any terms agreed between those parties.

Units may be used to reduce a person’s final emissions value (FEV) and in so doing are ‘extinguished’.[87] Units may also be extinguished upon the person’s request and are in any event extinguished 3 years after their issue, if not already extinguished.[88]

The Secretary is required to establish and maintain the Registry.[89] The Secretary may be assisted in doing so by the Clean Energy Regulator, who administers similar registers under the Australian Carbon Credit Scheme and Renewable Energy Target.[90]

The NVES Bill provides for the opening and closing of registry accounts, the correction of errors in registry accounts, and the rectification of registry accounts by court order.[91] It also establishes a range of criminal offences and civil penalty provisions relating to dealings with registry accounts, such as providing false and misleading information.[92] Clause 69 provides for rules to be made relating to the operation and management of the Registry, including the transfer of units.

Clause 86 requires the Secretary to publish on the Department’s website information from the Registry (and to keep that information up to date), including:

• for each person with a covered vehicle, the person’s interim emissions value
• the name of each person who has a registry account
• the number of units held in each registry account
• other information, as prescribed by the rules.

The Explanatory Memorandum states:

The publication of information provides transparency in the operation of the Bill. The publication of information about the holding of units also contributes to market transparency and allows people interested in trading units to have access to relevant information to allow for efficient trading. The rules may also provide for the publication of other information. After further development of rules to support the legislation, it might be considered desirable to publish information like: the Final Emissions Value for each person, the total amount of emissions offset through the extinguishment of units, and/or the total amount paid under infringement notices, for example.[93]

Consideration may be had to whether it may be desirable, in the interests of transparency, for the Secretary to be required to regularly publish other information in addition to the examples provided in the Explanatory Memorandum (as quoted above). Another example could include information on the imposition of civil penalties under clause 17.

Compliance and enforcement mechanisms

Part 5 of the NVES Bill establishes the compliance and enforcement mechanisms applicable to the NVES. It does this by applying the Regulatory Powers Act in relation to:

• monitoring powers (proposed clause 74)
• investigation powers (proposed clause 75)
• civil penalties (proposed clause 76), applicable to clauses 17, 60, 62–65 and 72
• infringement notices (proposed clause 77)
• enforceable undertakings (proposed clause 78)

Part 5 also includes provisions providing for:

• the appointment of inspections by the Secretary (clause 71)
• the Secretary to require a person to produce information relevant to administration of the Registry (clauses 72 and 73)
• a court, upon the application of the Secretary, to make adverse publicity orders or non-punitive orders (clauses 83 and 84).

However, the Bill also modifies the application of the Regulatory Powers Act in relation to clause17 – the duty to ensure that the final emissions value is zero or less. The most significant of these are set out below.

Firstly, as explained in the Explanatory Memorandum,

… clause 17 is not subject to [the monitoring powers and investigation powers] because whether a person has complied with their duty under clause 17 is based on a point-in-time final emissions value – i.e. whether at the start of the final reconciliation day for the year, the person’s final emissions value for the year is zero or less. A person’s final emissions value is determined by reference to information that is already available to the Department.[94] [emphasis in original]

Secondly, clause 79 modifies the application of subsection 82(5) of the Regulatory Powers Act in relation to contraventions of clause 17. Subsection 82(5) provides for the application of the corporate multiplier (being 5 times the maximum pecuniary penalty) if the contravening person is a body corporate. Clause 79 provides that the maximum penalty a court could impose is ‘the pecuniary penalty specified for that civil penalty provision’ (that is, $100 for each CO₂ g/km of a person’s final emissions value, subject to indexation).

Thirdly, clause 82 modifies the application of subsection 104(2) of the Regulatory Powers Act in relation to contraventions of clause 17. Subsection 104(2) sets out the maximum penalty amount that could be specified in an infringement notice. It provides that the maximum penalty that could be imposed is the lesser of:

(a) one‑fifth of the maximum penalty that a court could impose on the person for that contravention; and

(b)  12 penalty units where the person is an individual, or 60 penalty units where the person is a body corporate.

Clause 17 specifies that the maximum pecuniary penalty is $100 for each CO₂ g/km of a person’s final emissions value. Applying subsection 104(2), the maximum penalty that could be specified in an infringement notice would be $20 for each CO₂ g/km above a person’s final emissions value. However, clause 82 provides that the maximum penalty that could be specified in an infringement notice is ‘half the maximum penalty that a court could impose on the person for that contravention’; that is, $50 for each CO₂ g/km of a person’s final emissions value.

The Explanatory Memorandum, with reference to the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, observes:

… if the penalty [that could be specified in an infringement notice] was lower the anticipated cost of compliance (by supplying more efficient vehicles), suppliers may make an economic decision to pay the penalty instead of supplying more efficient vehicles. This would undermine the objectives of the NVES Bill to reduce CO₂ emissions from new road vehicles and stimulate the provision of low and zero emissions vehicles into the Australian market.[95]

The government has indicated ‘it expects few, if any penalties, will be paid under the Government’s proposed approach to the New Vehicle Efficiency Standard’ because ‘vehicle manufacturers are expected to be able to meet an Australian New Vehicle Efficiency Standard, as they generally do in the vast majority of advanced economies with efficiency standards in place’.[96]

Infringement notices are ‘generally issued for minor matters where a high volume of contraventions are expected’ but may also be issued ‘where an assessment of a contravention can easily be made based on straightforward factual questions’ – as may be the case in respect of a person’s final emissions value.[97] It would be within the remit of the department to determine what if any compliance action may be appropriate in the circumstances. However, consideration may be had to whether the issuing of infringement notices in the government’s signature policy directed at reducing emissions from the passenger and light commercial vehicle component of Australia’s transport sector is desirable.

A limited review mechanism

Clause 93 requires the Minister to cause a review of the operation of the Act to be commenced before 31 December 2026. The Minister must cause a copy of the report to be tabled in each House of Parliament within 15 sitting days of receiving it.

The compliance requirements of the NVES are staggered, such that a person’s IEV for the preceding year is not determined until 1 February of the following year. The person then has a further 2 years to ensure compliance with that IEV (by earning or purchasing units), such that any potential liability for the first period of the NVES’ operation (1 July 2025 to 31 December 2025) will not arise until 1 February 2028.

To maximise the utility of a review of the operation of the Act, it may be useful for it to be timed to take into account a second accounting period (which would fall due on 1 February 2027) and associated public reporting of compliance with IEVs. Further, consideration could be given to requiring regular formal reviews of the operation of the Act aligned with the determination of the headline limits for each successive five-year period of the NVES’ operation.[98] This would be consistent with other climate-related laws such as the National Greenhouse and Energy Reporting Act 2007 under which the safeguard mechanism is established.[99]

Acknowledgement: the author thanks Chris Welch, Lizzie Smith and Louise Woodward (Science, Technology, Environment and Resources Section) for their assistance with background research on the views of major interest groups.