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in short:
A loophole in the calculation of vehicle emissions could allow carmakers to rush high-polluting vehicles into Australia without penalty.
A loophole in new vehicle efficiency standards could undermine emissions targets for the first three years.
What’s next?
The government said it wanted to address the loophole but admitted it could not do so until the plan was implemented.
Automakers can use the loophole to rush the most polluting vehicles into the country and evade regulation under the climate law during the first three years of the government’s new vehicle efficiency standards (NVES).
It could also affect the push to bring more electric vehicles into the country — one of the law’s main goals.
NVES in May Lightened version Backed by the Green Party, the bill would require carmakers to reduce emissions every year by meeting average emissions limits on the cars they sell or face stiff penalties.
In talks with the auto industry, the government agreed to delay the official start of the scheme by six months to July 2025, partly to give the system time to adapt to the new regulations.
But a loophole in Australia’s vehicle registration system allowed carmakers to import the most polluting cars in the first six months of the scheme and then sell them over the next 12 to 18 months without them being counted towards emissions totals.
Unlike other markets where imported cars are registered at dealership points of sale, Australian imported cars are registered at ports, meaning they can be imported and registered before the official start of NVES but then sold afterwards without being counted towards the scheme.
Furthermore, since these uncounted cars will make it easier for manufacturers to reach the emissions limits set for them, they will be able to generate more credits over the following two years, making it easier again to meet their climate obligations.
That means the loophole could undermine emissions-reduction targets in the program’s first three years and reduce the need for automakers to import more electric vehicles to offset their emissions.
But the government admitted it would not be able to plug the gap in time for the scheme to be implemented.
There are early signs that automakers are considering stocking up in advance to take advantage of the loophole.
At a recent industry conference, a keynote speaker advised attendees that they should buy “higher-emission vehicles” in the next 12 months.
“The penalties will not come into effect until July 1, 2025,” the report from the Australian Fleet Education and Leadership Summit states.
Automakers say it will be difficult to shift production lines at such short notice to take advantage of the six-month window.
Government fails to meet deadline to close loopholes
The UK government acknowledged the loophole existed during a parliamentary debate, but Transport Secretary Catherine King said it would be impossible to close it before the scheme was implemented.
“While implementation of the scheme is particularly complex and unlikely to be completed by January 1, 2025, the government will seek to achieve compliance at the point of sale, including through a review of the scheme in 2026,” Ms King said.
Australian Automobile Dealers Association chief executive James Waterman said carmakers would use what advantages they could to comply with the regulations and the loophole should be closed.
“If at any stage you don’t have a system in place to ensure that the products you’re regulating are actually being sold and emissions are being reduced … you have to question the integrity of the program,” Mr Waterman said.
“Manufacturers are going to come up with all sorts of ways to try to meet their compliance obligations, and by passing that risk onto local businesses, you’re just potentially creating a perverse incentive for those manufacturers.”
As it stands, car dealers will bear the risk of manufacturers rushing to offer substandard cars because they will ultimately have to pay financing fees on those cars longer if they sit unsold at dealerships, Wortman said.
Australia passed NVES in May after previous governments tried and failed to impose emissions standards on cars, making it one of the last major economies in the world to do so.
The government says the average Australian car consumes 40 per cent more fuel than a European car and 20 per cent more than a US car.
Carbon emissions from transport are predicted to be the largest source of emissions in Australia by the end of the century – the government says the NVES will help cut emissions from new cars by half over the same period.
We have contacted Ms King for comment.
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