Australia's new fuel efficiency scheme has been in place for just seven months.
Author
- Hussein Dia
Professor of Transport Technology and Sustainability, Swinburne University of Technology
But the New Vehicle Efficiency Standard has already created a new, tradeable carbon currency applying just to cars and light commercial vehicles (utes and vans) market. In just months, the scheme has created a surplus of roughly 16 million " NVES unit " credits.
When manufacturers sell efficient cars, they earn credits. When they sell high-emitting ones, they rack up a debt. Any debts will have to be settled either by buying credits from car companies in surplus or by paying financial penalties.
As a result, brands such as BYD, Toyota and Tesla are already banking millions of credits, while others such as Mazda, Nissan and Subaru are building up debts which will get harder to ignore. We don't know how much credits are worth yet as the market is too new and carmakers haven't started trading them yet.
The architects of the scheme deliberately designed credit trading into the laws . But the speed and scale of these market dynamics has been surprising. From next year on, the legally binding targets will progressively tighten - and the average new car on the road will get cleaner and cleaner.
Promising signs
For decades, Australia was one of the few developed nations with no limit on how much carbon dioxide cars could belch out in their exhaust.
That changed on July 1 2025 when the New Vehicle Efficiency Standard came into effect. It sets a limit on total emissions a manufacturer's range of models can produce (141 grams of carbon dioxide per kilometre for cars, 210g/km for utes and vans in 2025) and then lowers the limit every year.
The first results from the new fuel efficiency scheme tell an encouraging story: almost 70% of carmakers beat their fleet emissions targets.
The results come from the six months between July 1 and December 31 2025, when almost 621,000 new vehicles were registered. Around 71% were cars and 29% were light commercial vehicles.
The scheme likely contributed to the first fall in transport emissions since COVID.
The credit kings
At present, Australia has 59 brands active in the market. Of these, 40 beat their targets and 19 didn't.
Many of these leaders should be no surprise. BYD stood out, earning a combined 6.3 million credits across its two registered entities from sales of battery-electric and plug-in hybrid vehicles. Tesla is a major credit generator too, banking 2.2 million credits.
But the real surprise is Toyota, which earned nearly 2.9 million. The Japanese carmaker has not been enthusiastic about EVs. Instead, it has flooded the market with hybrids , giving it a fleet emitting well under the current limit. But this advantage will be short-lived as limits tighten year on year. Eventually, even Toyota will have to shift to plug-in hybrids and battery-electric vehicles.
The scheme is not a zero-sum game - it can run in surplus. In 2025, credits generated outstripped liabilities by more than 15 to 1, reflecting deliberately easy first-year targets to ease industry into the system. But as targets tighten sharply from 2026, carmakers now in surplus will likely need those banked credits for their own future compliance - meaning the market is less unbalanced than the current numbers suggest. Unused credits expire after three years.
Who's feeling the heat?
On the other side of the ledger, name brands are starting to sweat. Mazda has the largest debt at present, owing more than 500,000 units. Nissan has around 215,000, and Subaru is close behind.
These carmakers are facing a tough choice. Do they radically change the types of cars they ship and sell in Australia? Do they pay financial penalties to the government? Or do they buy credits from rivals? In practice, most will use a combination, gradually greening their fleet while buying credits to bridge the gap.
Cleaner models are a better business decision
Most likely, carmakers accruing debts under the scheme will pass the cost on to consumers, making cars from higher-polluting brands more expensive. Companies in surplus can sell credits, using the proceeds to lower prices and attract more customers.
Think of it as a stealth subsidy. Every time someone buys a less efficient car from a struggling brand, they could be making someone else's new electric vehicle cheaper.
For the first time in Australia, fuel efficiency is rewarded and waste penalised. This means cleaner models are now a better business decision for carmakers. Volume of sales alone now isn't enough for success in Australia's highly competitive market. Model range and choice of technologies have become increasingly important.
Clearer air
Overall, new cars sold from July to December beat their emissions targets by 21%, emitting 114g of CO₂ per km on average against a target of 144g/km.
Light commercial vehicles also cleared the bar - though only just - averaging 199g/km against a target of 214g/km. Without a rapid influx of hybrid or electric utes, the sector could hit a compliance wall as early as next year, when targets tighten sharply .
In total, I estimate the new cleaner vehicles will stop between 190,000 and 220,000 tonnes of CO₂ entering the atmosphere every year they remain on the road. That's the equivalent of taking 100,000 older, dirtier cars off the roads.
Impressive start, job far from done
This early good news doesn't mean the job is done. The 2025 targets were set to be achievable to ease industry into the system, meaning credit kings could coast until 2027, delaying the launch of even cleaner models.
But the reprieve won't last long. Targets will get harder and harder to meet. A car emitting just over the limit today will be significantly over it by 2028. Because penalties scale with emissions, highly polluting cars will cost makers more and more. A huge credit surplus could be wiped out surprisingly quickly if a manufacturer is slow to modernise.
What's next?
Australian consumers can expect to see more fuel-efficient cars, more affordable EVs and fiercer competition as carmakers clean up their range.
Australia's carbon market for cars has officially opened. In this game, standing still is the most expensive move any company can make.
Hussein Dia receives funding from the Australian Research Council, the iMOVE Australia Cooperative Research Centre, Transport for New South Wales, Queensland Department of Transport and Main Roads, Victorian Department of Transport and Planning, and Department of Infrastructure, Transport, Regional Development, Communications, Sport and the Arts.
