The Australian Federal Parliament has just passed the New Vehicle Efficiency Standard Bill 2024, on 16 May 2024. The Bill was passed without amendments and will now become law, commencing 1 January 2025.
As we have previously detailed, there are potential World Trade Organization concerns with this new measure.
Following our commentary, a staged implementation was introduced to the design of the measure. The scheme will commence on 1 January 2025 with compliance requirements commencing from 1 July 2025, allowing for the preparation and testing of essential data reporting capabilities.
The new law will have significant implications for the importation of vehicles, both electric and traditional, into Australia.
- From 1 July 2025, people that register newly imported vehicles in Australia will be required to comply with caps (“headline limits”) on the vehicle’s emissions (Co2 kg/year).
- Non-compliance with this new duty will incur a civil penalty / fine, which will be the person’s final emissions value for the year multiplied by $100.
- There are separate and graduated caps for two categories of vehicle:
- A vehicle under these limits will be granted a credit that can be traded to others so they can remain under the cap and avoid the penalty.
The Bill, and changes prior to passage, have been controversial in Australia.
The design of the Bill was changed before being presented to Parliament, so that SUVs and 4WDs were moved from the Type 1 category to the Type 2 category.
This was done following extensive consultation, but was perceived by some as watering down the scheme. Commentators argued that Australia has a symbolic attachment to, rather than a need for, “oversized” and more emissions-intensive vehicles and that the change means the law does not do enough to disincentivise the heavier vehicles.
During the passage of the Bill through Parliament, the Federal Opposition proposed several amendments. Firstly, it sought to exclude the civil penalty / fine from applying – which would essentially make the scheme unenforceable. The second amendment proposed was to allow credits to remain tradable and not expire until 5 years after issuance, instead of three years. Both amendments were rejected by the Labor Government, which currently holds a majority in both Houses.
What are the implications for the Australian vehicle market?
Inbound importers and distributors will, from 1 July 2025, be subject to restrictions and potentially penalised for bringing in vehicles with higher emissions, and incentivised and rewarded for importing vehicles with lower emissions. This will change the mix of vehicles that they will seek to import – provided that consumer preferences shift too. If people still want a heavier vehicle, and the cost of importing those is not defrayed by enough people wanting less emissions-intensive vehicles, then the cost of importing the higher emission vehicles will be passed on to the consumer. In any event, it’s likely to mean less demand for more emissions-intensive vehicles.
We note that the Bill (soon to be Act) specifies that headline limits were “determined consistently with the NEDC (New European Driving Cycle) test procedure”.
This may favour producers that already have to comply with that procedure – such as those that predominantly supply the European market.
What about second hand and classic cars?
Whether second hand or classic cars, registered for sale on the Australian market for the first time after 1 July 2025, will be covered by the NEVS requirements will be a question answered via a Ministerial determination. Schemes exist to allow for classic and collectible vehicles, and specialist and enthusiast vehicles, as well as the family cars of people migrating to Australia, to be imported. Those interested in such vehicles may be willing to put up with paying the penalty for a one-off import. But if the Minister decides to allow for particular classes of such vehicles to be exempt, then we could see a paradoxical incentive to switch to importing classic Mustangs or Pontiac Firebirds instead of large utes.
Please get in touch with our international trade and regulatory teams if you have any questions or would like to discuss this development further.
