New Vehicle Efficiency Standard – An Explanation and Analysis

Disclaimer: I am not an expert on transport policy! I could be wrong in any of my analysis, so please feel free to share a correction if you feel I have made any mistakes.

The Federal Government has recently provided more information on its New Vehicle Efficiency Standard (NVES), previously known as the Fuel Efficiency Standard. The consultation paper is available here: New Vehicle Efficiency Standard, as is a survey to share your thoughts.

I decided to spend an overly hot Melbourne weekend digging into the paper and the details around vehicle efficiency standards globally. The full document is worth a read if you are a decarbonisation nerd like I am.

Policy Summary:

• Annual Emissions Limit: The NVES sets an annual limit on?tailpipe CO2 emissions per kilometre?for new vehicles.
• Company-Level Compliance: Rather than applying to individual cars, the NVES focuses on a car company as an entity. It doesn’t ban any vehicles but requires companies to balance high-emission vehicles with more efficient ones or purchase offsets from other companies.
• Global Context: Brazil, Canada, Chile, China, the EU, India, Mexico, New Zealand, South Korea, the United Kingdom and the USA all already have NVES regulations in place. Australia stands out as one of the few advanced economies without one.
• Fuel Efficiency Gap: Currently, cars purchased by Australians are significantly less fuel-efficient compared to those in similar countries.
• Cost and Carbon Savings: The analysis indicates that implementing the NVES will have significant cost savings for consumers and reduce carbon emissions considerably.
• Vehicle Types: The NVES applies different emission rates to passenger vehicles and light commercial vehicles. The standard will not apply to large trucks or other heavy vehicles like busses, which have different rules and standards.
• Purchase price impact: Multiple studies have found that a NVES will not make vehicles more expensive to purchase on average.
• Promoting Low-Emission Vehicles: The scheme aims to encourage the adoption of hybrids, electric vehicles (EVs), and other low-emission options.
• Implementation Date: The policy is scheduled to take effect from?the 1st of January, 2025.
• Benefits to all areas: The report studied impacts across cities, regional and remote areas and found that there would be benefits to all areas, with actually a higher benefit to more remote areas.

The Three Options

The consultation paper lays out 3 options which vary in their policy setting around how fast the allowable CO2/km rates decline and how other factors should influence the allowable emissions (type of vehicle, mass, technology options used etc). All 3 options start with the same grams of CO2/km target in 2025 and then decrease by different amounts.

Option A:

• Slow Emission Decline Rate: Option A features the slowest decline rate?for emissions out of the 3 options.
• Vehicle Types: It allows SUVs and passenger 4WDs to use the less strict standard for light commercial vehicles (vans and utes).
• Enforcement Delay: The scheme enforcement would be?delayed by two years until 2027 compared to 2025 for Option B and C.
• Supercredits: Option A grants extra ‘supercredits’?for hybrids, EVs and high-efficiency ICE vehicles, meaning that 1 EV sold would offset 3 high emitting vehicles not just 1, which could encourage EV uptake but also dilute the effectiveness of the scheme – the more credits in the system, the less abatement occurs.
• Penalties: Car companies would pay just $40 per g/km over the limit, limiting financial incentive to comply.
• Weak Climate Impact: Modelling shows it would provide?minimal emissions reductions?compared to the business-as-usual (BAU) scenario.

Option B:

• Government’s preferred choice: The report states that this the governments preferred choice, so should be seen as ‘the plan’ subject to being influenced in either direction.
• Moderate Emissions Decline Rate: Option B aims to catch up Australia’s standards with those of the US by?2028 and match their rate from there onwards.
• Vehicle Types: Only Utes and Vans can use the light commercial threshold, SUVs and 4WDs would be treated as regular passenger vehicles.
• Supercredits: Option B eliminates the extra ‘supercredits’ seen in Option A, meaning less credits available and thus a more effective scheme.
• Penalties: Non-compliance would incur?penalties of $100 per g/km, more than double Option A.
• Moderate Climate Impact: The estimated cumulative emission reduction by 2035 would be?97 million tonnes of CO2?compared to BAU.

Option C:

• Steeper Emissions Decline Rate: Option C has the steepest emissions rate of the 3 options, aiming to match the US standard by 2026, then exceed that and match the UK’s standard by?2027 and onwards.
• More aggressive: It uses Option B as a base and then adjusts weight curves, credit banking timelines, and penalties for non-compliance ($200 per g/km) to overall be more strict.
• Strong Climate Impact: The steeper decline and other tweaks give Option C an estimated cumulative emission reduction of?125 million tonnes of CO2 by 2035, beating Option B by?28 million tonnes.?

International Comparison

The discussion paper’s “international comparison” graph only includes the US, so I went looking for a wider range of comparisons. How different schemes allow for vehicle types and weight classes, technology credits, testing methods etc all mean that direct comparisons are challenging, however this graph from the International Council on Clean Transportation has tried to do most of that equalisation already and provides a summary of the policies of some major economies from around the world, which I have then overlaid with the 3 options outlined in the paper:

Our standards would start where the US and Europe were in roughly 2010 and then decline at different rates until 2029, where the current proposal stops. It is expected that new targets would be set closer to 2029.

Option A:

• Option A would position Australia as an?international outlier, allowing significantly higher emissions than other countries’ targets.
• By 2029, emissions from cars under Option A could be worse than what the USA has in 2024, the UK and the EU had in 2021, and Norway had all the way back in 2015.

Option B:

• Option B aims to bring Australia in line with the US standards by?2028?and maintain that alignment thereafter.
• Given the US’s inclination towards gas-guzzling SUVs and pickup trucks, matching their standards seems like the?bare minimum we should be doing.

Option C:

• To set a more ambitious benchmark, we should compare ourselves to other leading jurisdictions such as New Zealand, Norway, the UK, and the EU.
• Option C would align us with the UK’s standards by?2027?and onwards. Interestingly, the report doesn’t explicitly mention this alignment, but it’s clear from the graph.?

Costs and Benefits

Financial Impact:

• The NVES is expected to save Australians a substantial amount of money.
• According to the analysis in the report,?Option C?would result in an estimated?$129.9 billion?in fuel cost savings from now until 2050 (with a 7% discount rate).
• Increases in electricity and vehicle costs would amount to?$58.6 billion, resulting in a net saving of?$71.4 billion.
• In more tangible terms this is?over $1,000 in petrol savings per year per new car by 2028.

Health and Environmental Benefits:

• Cleaner Air: Reduced particulate pollution leads to improved air quality and better health outcomes.
• Climate Impact: Lower CO2 emissions contribute to a healthier climate.

These factors combined have an estimated collective savings of?$36.9 billion. Note that the cost of carbon used in this analysis is conservative by international standards; so the actual benefits are likely higher.

The thorny issue of mass

• In all options presented, the emissions limits are proportional to vehicle mass.
• The somewhat opaque process for defining what those limits should be involves defining a line based on average masses and emissions from previous years’ fleets, with fixed upper and lower limit thresholds on top of that.
• Option C has a "30% reduction" of the slope of this line compared to Option B, although the exact details are left unclarified.
• Under the proposed standards, a heavier cars could emit more than a lighter one, meaning a manufacturer could choose to sell heaver cars and emit the same rather than actually lowering fleet emissions,
• A shift to larger cars would mean emissions savings are lower than otherwise would have been possible.
• Allowing a higher limit for a heavier passenger car has the potential to encourage larger and heavier cars and SUVs.

Encouraging heavier cars is actively harmful given larger and heavier vehicles:

• Use more materials to produce (both EV and ICE vehicles), meaning more production related impacts (mining, refining, etc)
• Cause more road wear and tear. This is not mentioned anywhere in the report, but road wear is proportional the 4th power of mass, so an increase in vehicle mass from 1500kg to 1800kg would cause twice as much road wear, and an increase to 2100kg four times as much!
• Take up more space on the road and in car parks (did you know that they are proposing to increase the standard width of a parking spot because our cars have gotten too fat?).
• Are much more deadly for pedestrians.

I think the standard for all cars should be flat regardless of weight, which is both simple to regulate and will not encourage larger vehicles. Light commercial vehicles already have higher limits, which brings us to...

Light commercial vehicle 'loophole'

As previously mentioned, there is a different standard for passenger vehicles and light commercial vehicles. Light commercial vehicles are given a higher emissions value in recognition of them being typically heavier and therefore potentially higher emitting, and the challenges in fully decarbonising some types of vehicles (although those are lessening all the time). If used for its intended purpose, this is fine.

However, it could mean manufacturers shift to pushing more ‘light commercial vehicles’ to general consumers to get away with worse emissions. Under Option B and C utes and vans are defined as light commercial vehicles, whereas under Option A this also includes SUVs and four-wheel drives.

There are already too many people with no work need driving around in massive American style utes/pick up trucks, a trend that does not need to be encouraged. Stricter eligibility criteria for what counts as a light commercial vehicle should be enacted to ensure this doesn't become a loophole.

I am interested to hear thoughts on how this could be done in a simple, fair and effective way.

‘Efficiency’ in name only?

An elephant in the room is that this ‘efficiency’ standard is actually about CO2 tailpipe emissions, not raw efficiency in terms of units of energy per kilometre travelled. CO2 emissions are highly correlated to underlying efficiency, and CO2 emissions are also well correlated to fuel use and thus petrol costs and particulate production, so it’s a useful yardstick. An EV is 3-5 times more efficient than an equivalent internal combustion engine vehicle, meaning even an inefficient EV will still typically be more efficient than even an efficient ICE vehicle.

However there are vehicles pushing those limits like the Hummer EV, a 4 tonne 4 tonne American tank-pretending-to-be-a-car which may have zero tailpipe emissions, but has raw efficiency values approaching that of a petrol powered Toyota Corolla or Honda Civic.

Should future standards not just look at tailpipe emissions but also raw efficiency in kWh/km for EVs? At this stage given EVs make up less than 10% of sales (and beasts like the Electric Hummer aren’t available in Australia) it's not a major issue yet, but it is something that may become a problem sooner rather than later if EV adoption does dramatically ramp up as predicted in coming years.

Not a silver bullet

One policy can’t be expected to solve all the transport related problems, but it is worth remembering that whilst there are clearly great benefits to society from car use around mobility and more, EV or not, cars also cause a lot of problems in society:

• Road crashes killed 1,266 people in Australia last year and caused over 62,000 hospitalisations.
• Cars and the associated infrastructure use lots of space (parking lots, on street parking, highways etc) that could be used for other purposes (parks, housing, etc)
• Vehicles kill an estimated 10 million animals every year, or about 1 every 3 seconds.

Efficiency standards and uptake of EVs is a positive step, but must not be seen as the only piece of the transportation puzzle. Strong investment in public transport and cycling infrastructure and developing walkable neighbourhoods through planning reforms will lead to a safer and healthier society. A huge opportunity would be policy aimed at boosting e-bike uptake, which are about 20-35 times more efficient than even electric cars!

Have Your Say

If you've made it this far, you're clearly a decarbonisation nerd just like me!

Let the government know your thoughts on which of the 3 options you favour, concerns about potential loopholes and other considerations – it only takes a few minutes to fill in the form.

Submissions are open until the 4th of March 2024, but do it before you forget!

Link to the questionnaire

Thanks for reading. Please let me know your thoughts on the policy and how it could be improved.

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