New cars could cost up to $2000 more under new environmental standards being considered by the Turnbull government, but motorists could save more than $500 a year on their petrol bills.
The proposed new fuel efficiency standards - which would require manufacturers to sell cars, trucks and buses with more efficient engines - would also help Australia meet its Paris climate-change commitments by keeping some 65 million tonnes of pollution out of the atmosphere.
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Two other measures - upgrading existing air pollution standards and improving the quality of fuel sold at the bowser - are also being considered.
However, the trio of proposals quietly released on Tuesday afternoon has alarmed motoring group the Australian Automobile Association (AAA), which warned of a hit to household budgets because new standards for cars and fuel could drive up the cost of fuel and cars - an argument the government's own draft regulatory impact statement concedes.
Climate change is a politically sensitive topic for the Turnbull government, which earlier this month beat a hasty retreat after initially announcing a review of its climate policy would examine a form of carbon pricing on the electricity industry.
Environment Minister Josh Frydenberg and Urban Infrastructure Minister Paul Fletcher announced they were seeking feedback about the proposed efficiency measures after inquiries from Fairfax Media on Tuesday.
In a joint statement, the pair said the proposals are "designed to keep Australia in line with international vehicle markets – and keep us enjoying some of the cleanest air in the world".
"By requiring global automotive manufacturers to supply vehicles in Australia with more fuel-efficient engines – as they are now doing in many other countries – these new standards could cut consumer fuel spending by up to $28 billion by 2040."
"This translates into annual fuel savings for the average owner of a passenger car and light commercial vehicle of up to $519 and $666 respectively."
Upgrading the quality of Australia's fuel, and mandating a reduction in the amount of sulphur in it, is potentially problematic for Australia's four remaining refineries because it could force them to upgrade ageing infrastructure and pass the cost on to consumers.
The draft impact statement notes that the Australian Institute of Petroleum has warned higher quality could "threaten the economic viability of Australian refineries".
However, the ministers noted current fuel standards expire in 2019 and "we need to be ready with new standards to ensure Australians can have access to the right fuel for the latest vehicle technology".
The claimed saving of between $237 to $519 a year in petrol costs assumes, in 2025, an average motorist in an average car purchasing petrol at a retail price of $1.30 a litre. The highest potential saving is based on Australia adopting the same fuel standard targets as Europe.
But the study models a price increase for an average performing passenger vehicle in 2025 of between $827 and $1922 - assuming manufacturers pass the full cost on to consumers.
It would take a motorist about four years to recoup the extra cost of a new car through fuel savings, according to the study - or an average of about 57,000 to 62,000 kilometres of driving.
AAA chief executive Michael Bradley questioned the government's claimed savings "in the absence of either real-world emissions testing, or a decision on future fuel standards and prices".
"The AAA encourages the government to credibly identify all of the costs and benefits associated with these proposed changes, as motorists deserve a clear explanation of how any fuel and car price increases will affect household budgets," he said.
Australia currently has a much lower quality of fuel compared to Europe and the United States.
In the year to December 2015, transport accounted for 17 per cent of greenhouse gas emissions in Australia, with light vehicles accounting for 10 per cent of that. Under current policy settings, transport emissions are projected to rise to 20 per cent by 2029-2030.
A discussion paper released by the government on Tuesday noted fuel consumption by Australian passenger vehicles increased by 460 million litres between 2010 and 2014 and automotive fuel was significant source of noxious emissions.
"Unless further action is taken to improve the management of vehicle emissions, air quality is likely to decline in the medium to long term. This will adversely impact on the health of Australians," the paper said.
Correction: An earlier version of this story reported that new cars could cost $2000 a year more under the new environmental standards being considered. In fact, it would be a one-off cost.