12 August 2025

Australia’s NVES 2025 - mandatory CO₂ targets for motor vehicle suppliers

Claire Perry

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From 1 July 2025, all covered vehicles entered onto the Register of Approved Vehicles (RAV) in Australia are subject to carbon dioxide (CO₂) emissions targets under the New Vehicle Efficiency Standard Act 2024 (Cth) (NVES). Suppliers that fail to meet their targets may be liable to pay financial penalties.

A central feature of the NVES is the creation of a unit trading scheme, similar in concept to carbon credit markets. Under this system, suppliers that beat their emissions target are rewarded with ‘units’ which can be used to offset excess emissions in other years or traded with other suppliers needing to offset their own emissions.

Suppliers must understand their compliance and reporting obligations under the NVES. The key features of the regime are summarised below.

Vehicles subject to the NVES

The NVES applies to two broad categories of vehicles:

Type 1 vehicles, which are passenger vehicles such as sedans, hatchbacks, and most SUVs, designed for carrying lighter loads.
Type 2 vehicles, which are light commercial vehicles, including vans, utilities, and some heavier SUVs, built to carry heavier loads.

To account for the functional differences between these categories, the NVES sets a less stringent emissions target for Type 2 vehicles, as they require more energy to operate.

A person has responsibilities under the NVES in respect of a vehicle if:

(a) The vehicle is a Type 1 or a Type 2 vehicle;

(b) The person holds a vehicle type approval under the Road Vehicle Standards Act 2018 (Cth) (RVSA) for that vehicle;

(c) The person enters, or authorises another person to enter, the vehicle onto the RAV for the first time during the relevant year (commencing 1 July for the 2025 compliance year); and

(d) The vehicle has a gross mass of less than 4.5 tonnes,

(covered vehicle).

In certain cases, vehicles with concessional RAV entry approvals (under the Road Vehicle Standards Rules 2019) may also be subject to the NVES.

Importantly, the NVES applies to persons outside Australia – such as overseas manufacturers – who enter covered vehicles onto the RAV. This reflects the fact that most new vehicles sold in Australia are manufactured overseas.

Emissions scheme

The NVES sets an annual CO₂ emissions target for each covered vehicle, adjusted for the vehicle’s mass. The emissions targets, which become more stringent each year, are set out in columns 2 and 3 below:

Year	Type 1 limit* (CO₂ g/km)	Type 2 limit* (CO₂ g/km)	Australian light passenger vehicle average CO₂ emissions for 2023 (CO₂ g/km)
2025	141	210	193.7 As determined in the report published by the National Transport Commission in December 2024
2026	117	180
2027	92	150
2028	68	122
2029	58	110

*These are the Headline Limits, not adjusted for a vehicle’s mass.

From 1 July 2025, when submitting a vehicle to the RAV, suppliers must include the vehicle’s CO₂ emissions number in grams per kilometre and its mass in running order. A vehicle’s emissions number is determined in accordance with the test procedure under the RVSA – currently the New European Driving Cycle, with a move to the Worldwide Harmonised Light Vehicles Test Procedure anticipated.

At the end of each calendar year, the supplier’s total emissions number for all covered vehicles is compared with their total emissions target. The result is the interim emissions value, which is calculated on 1 February of the following year (on the interim reconciliation day). For example, the interim emissions value for the 2025 compliance year is calculated on 1 February 2026.

If the interim emissions value is below zero (because the vehicle fleet produces less emissions than its target), the supplier is rewarded with ‘units’ equal to the difference between the emissions target and the interim emissions value. Units can be used to offset emissions in another year or traded with other suppliers who need units to offset against their own emissions.

If the interim emissions value is above zero, the supplier has two more years (the end of which being the final reconciliation day) to reduce it to zero by extinguishing units (earned in other low or zero emission years or acquired from other suppliers). The resulting value is the final emissions value. For example, for the 2025 compliance year, a supplier has until 1 February 2028 to reduce their final emissions value to zero.

If a supplier fails to reduce their final emissions value to zero by the final reconciliation day, they will be penalised an amount equal to the supplier’s final emissions value multiplied by $100.

Putting this into practice

Applying the scheme to a vehicle with a mass of 2,000kg and carbon emissions of 194g/km (which is the Australian vehicle emissions average) (Average Vehicle) the results are as follows:

Emissions Target* (CO₂ g/km)	Actual Emissions (CO₂ g/km)	Difference between Actual and Target (CO₂ g/km)
159.4 g/km	194 g/km	34.6 g/km

Emissions Target*

(CO₂ g/km)

Actual Emissions

(CO₂ g/km)

Difference between Actual and Target

(CO₂ g/km)

159.4 g/km

194 g/km

34.6 g/km

*The Emissions Target has been determined by applying the formula in Part 2, Subdivision C of the NVES which is adjusted for the vehicle’s weight.

If the supplier enters 1,000 ‘Average Vehicles’ onto the RAV in 2025, its interim emissions value would be an excess of 34,600 g/km. The supplier must surrender 34,600 units or pay a penalty of $3.46M for the excess.

NVES Unit Registry

The NVES establishes the New Vehicle Efficiency Standard Unit Registry (Registry), which serves as the platform for the issue, holding, transfer and extinguishment of efficiency units. To receive units, a supplier must open an account with the Registry, units are then issued by the Registrar making an entry in the supplier’s account.

The Registry will be publicly accessible to ensure transparency and facilitate the trading of units between account holders. It will record key information, including the name of each account holder, the number of units they hold and potentially their interim emissions value for the relevant year.

To reduce a positive interim emissions value to zero, an account holder can request the Registrar to extinguish units from their account to offset the positive emissions value. The request must be made within the period commencing on the interim reconciliation day and ending on 31 December of the following year. For example, to offset excess emissions from the 2025 compliance year, the request must be made between 1 February 2026 and 31 December 2027.

Units will expire three years after the date of issue if not used earlier.

The Registry is expected to become operational from September 2025 and will be regulated by the Department of Infrastructure, Transport, Regional Development, Communications, Sport and the Arts (Department).

Enforcement

Under the NVES, the Department has broad enforcement powers to ensure compliance. These include:

Inspection, monitoring and investigation powers:
- The Department may appoint inspectors to enter a supplier’s premises, inspect documents, ask questions and compel the production of information to confirm the accuracy of information provided to the Department.
- Boarder powers include entry, search and seizure where non-compliance is suspected.
Enforcement tools:
- Civil penalty provisions for breaches of key obligations.
- Infringement notices for less serious contraventions.
- Enforceable undertakings, published on the Department’s website.
- Adverse publicity orders requiring public disclosure of non-compliance (e.g. publishing details of inefficient vehicles).
- Non-punitive orders, such as requirements to implement compliance training or revise internal operations.