If you've been shopping for a new car lately, you might have heard whispers about the New Vehicle Efficiency Standard (NVES). It sounds like industry jargon, but it's actually going to reshape what's available on the Australian market.
This is designed to lift overall vehicle efficiency across new cars sold in Australia, while still giving consumers more choices across passenger cars, SUVs, utes, and light commercial vehicles.
This policy can affect your choices in ways that might surprise you, no matter what you drive. Read on to learn exactly what the NVES is, and why you should care.
So, What is the New Vehicle Efficiency Standard in Australia?
The New Vehicle Efficiency Standard (NVES) is a federal policy that sets average CO₂ emissions targets for every new passenger car, SUV, ute, and van weighing up to 4.5 tonnes that manufacturers import into Australia. They need to keep the average emissions of all of their new vehicles below a certain threshold, or face financial penalties.
Under the NVES, car manufacturers are assessed on the average emissions per kilometre of each new vehicle they import, encouraging them to supply more fuel-efficient vehicles across their total range.
Here's the thing: makers can still sell V8s or big diesel utes. They just need to balance those out with cleaner models, like hybrids or electric vehicles. That means emissions of vehicles powered by petrol or diesel can still be sold, as long as manufacturers offset them with efficient models such as hybrid and electric vehicles.
The scheme officially kicked in on 1 July 2025, and the targets get progressively tighter each year through to 2029. Manufacturers also need to carefully manage their supply to ensure that their fleet stays under the emissions target each year.
How the NVES Works in Practice
The Australian Government has split vehicles into two categories. Type 1 covers most passenger cars and lighter SUVs. Type 2 includes utes, vans, and heavier four-wheel-drive wagons. Each category of new vehicles sold in Australia has its own emissions cap, measured in grams of CO₂ per kilometre.
Here's what the roadmap looks like:
Type 1 Fleet Limits (Cars & Most SUVs)
2025: 141 g/km
2026: 117 g/km
2027: 92 g/km
2028: 68 g/km
2029: 58 g/km
Type 2 Fleet Limits (Utes, Vans, Heavy 4WD Wagons)
2025: 210 g/km
2026: 180 g/km
2027: 150 g/km
2028: 122 g/km
2029: 110 g/km
The targets are adjusted based on weight, which means heavier vehicles get a slightly higher allowance. Every model's certified CO₂ result is multiplied by the number imported to calculate whether a brand earns credits or racks up debits.
Brands that come in under target can bank those credits for up to three years or sell them to other manufacturers through credit trading. If you miss the target, you’ll cop a penalty that adds up fast when you're importing thousands of cars. Credit trading gives car companies flexibility while still pushing the entire market towards better vehicle efficiency and a cleaner environment.
What the New Vehicle Efficiency Standard Means for Buyers
The first question most people ask is: "Will this make my next car more expensive?"
The short answer is maybe, but it's complicated. Several car companies have already hinted they might pass NVES penalties on to buyers through higher recommended retail prices. If a brand wants to keep selling high-consumption models without investing in cleaner alternatives, they'll either eat the cost or bump up the sticker price.
On the flip side, to avoid penalties, manufacturers will lean heavily on low-emission models. That means you should see a wider range of hybrids, plug-in hybrids and electric vehicles hitting Australian showrooms, often with sharper pricing to move volume. More supply usually means better deals.
Some niche variants might quietly disappear, such as limited-run V8 SUVs or high-output diesel utes that hurt a brand's fleet average. If a model doesn't sell in big enough numbers to justify the penalty hit, it'll get axed.
Debunking the "Ute Tax" Myth
Some are starting to call NVES a "ute tax”, but that’s not quite right, as the new vehicle efficiency standard doesn't impose a direct tax on buyers. Penalties are levied at the importer level, and any price rise is a commercial decision by the manufacturer, not a government charge. The NVES oversees compliance at the importer level only, not at the point of sale.
Yes, utes face a higher emissions target than passenger cars because they're typically heavier and used for towing, but the system is designed to be flexible. A brand selling lots of diesel utes can offset them by importing more hybrid SUVs or electric vans. It's all about balance across the entire range.
Private owners of older cars are completely untouched. The NVES applies only to new vehicles entered on the Register of Approved Vehicles from 1 July 2025 onwards. Your current ute, van, or sedan won't face any penalties or restrictions.
How Car Manufacturers Are Responding
Car companies aren't sitting still, with most major brands already starting to adjust their Australian line-ups to meet the new vehicle efficiency standard targets. That means fast-tracking the rollout of hybrid, electric, and low-emissions vehicles to meet emissions targets.
Some manufacturers are banking on credit trading to smooth the transition. If one brand overshoots its target with a flood of EVs, it can sell surplus credits to another brand struggling to comply. This creates a financial incentive to go cleaner, faster.
Others are taking a different route by trimming their portfolios, dropping low-volume models that drag down the fleet average. This is why buyers may notice simplified ranges or fewer engine options as manufacturers focus on efficiency.
The Australian market will start looking a lot more like Europe, where similar efficiency standards have been in place for years. This shift will ensure that Australian consumers can access modern, fuel-efficient vehicles that are already available overseas.
Impacts on Fuel Costs and Running Expenses
One often-overlooked benefit of the NVES is the potential for long-term fuel savings. Stricter emissions targets push manufacturers to deliver more efficient engines, lighter materials and better aerodynamics. All of that translates to fewer trips to the petrol station.
Let's say you're comparing two mid-size SUVs. One averages 8 litres per 100 km, the other 6 litres per 100 km. Over 20,000 km a year, that's a 400-litre difference. At current petrol prices, you're looking at savings of $700 or more annually. Multiply that over the life of the vehicle, and the numbers get compelling.
Diesel utes and vans will also see incremental improvements. Even a drop from 10 litres per 100 km to 9 litres per 100 km makes a big difference when you're racking up kilometres for work or towing a trailer every weekend.
The NVES doesn't just benefit the environment. It puts money back in your pocket through reduced fuel costs, which is something every motorist can appreciate.
What This Means for Fleet Managers and Businesses
If you run a company fleet or handle salary packaging for business cars, the new vehicle efficiency rules will affect your planning in the next few years. Lease costs for popular work utes and vans might go up if suppliers pass on any fines from the rules. On the other hand, there will be more low-emission company car options, which could help drivers on a novated lease save on the Fringe Benefits Tax (FBT).
People who estimate the value of, or sell used cars, will also need to pay attention. If certain high-fuel vehicles, like V8 utes or diesel wagons, become harder to buy new, then used cars may become more expensive.
Fleet managers may also need to start ordering cars in advance, before each year’s new efficiency targets take effect. This takes extra planning, but it can save your business money over time.
Regional and Infrastructure Considerations
One concern raised by regional Australians is whether the new vehicle efficiency standard will limit access to practical vehicles suited to country life. The good news is that the policy has been designed with regional development in mind; so, utes, vans, and four-wheel drives aren't being phased out. They're just being made more efficient over time.
Modern diesel engines and hybrid powertrains are already proving they can handle towing, long-distance travel and rough terrain while using less fuel. The infrastructure for electric vehicles is still catching up in regional areas, but plug-in hybrids offer a practical middle ground with petrol backup.
The Department of Infrastructure, Transport, and Regional Development has been clear that the NVES is technology-neutral. Manufacturers can meet targets however they choose, whether that's through diesel, petrol, hybrid or electric powertrains. The focus is on outcomes, not mandating specific technologies.
Looking Ahead to 2029 and Beyond
By 2029, the vehicle efficiency standard targets will be significantly tighter than today. For Type 1 passenger cars, the limit drops to just 58 grams of CO₂ per kilometre. That's a level that's almost impossible to achieve with conventional petrol or diesel engines alone.
What does that mean in practical terms? Expect the Australian market to be dominated by hybrid, plug-in hybrid and fully electric models by the end of the decade. Pure internal combustion engines will still exist, but they'll be niche products in the overall mix.
This transition is already well underway globally. Australia has been slow to adopt cleaner vehicles compared to Europe, Asia and even parts of North America. The NVES is designed to close that gap and give Australian consumers access to the same modern, efficient vehicles available elsewhere.
How Easi Can Help You Navigate the Changes
At Easi, we're across every detail of the new vehicle efficiency standard and what it means for private buyers, salary packaging clients and company fleets. Our local expert team can guide you through the options, help you understand the real-world costs, and tailor a lease or fleet solution that keeps you ahead of the curve.
Ready to future-proof your next vehicle? We'll walk you through the new vehicle efficiency standard and build an affordable solution that works for you. Call 1300 327 453 or see your other options to talk to our friendly team.
