In short:
A loophole in how car emissions will be counted could let manufacturers rush high-polluting vehicles into Australia without penalty.
The New Vehicle Efficiency Standard loophole could see emissions targets for the first three years undermined.
What's next?
The government says it wants to address the loophole, but conceded it won't be able to do so before the scheme starts.
Car makers could use a loophole to rush their highest-polluting vehicles into the country and dodge climate laws for the first three years of the government's New Vehicle Efficiency Standard (NVES).
It could also impact the push to bring more electric vehicles into the country — one of the key goals of the laws.
The NVES, which was passed in May in a watered-down version with the support of the Greens, forces car manufacturers to cut their emissions each year by requiring them to meet an average emissions limit for the vehicles they sell, or else face heavy penalties.
The government agreed to delay its official start by six months to July 2025 in negotiations with the motor industry, in part to allow time for systems to be adapted to the new laws.
But a loophole in how vehicles are registered in Australia will allow car manufacturers to import their highest-polluting cars in the first six months of the scheme and then sell them over the following 12 to 18 months without them counting against their emissions totals.
Unlike other markets which register imported cars at the point of sale at a dealership, Australia's imports are registered for approval at port, meaning they can be brought in and registered before the NVES formally begins, but then sold at a later date without being counted under the scheme.
Additionally, because those uncounted cars will make it easier for manufacturers to beat the emissions limits set on them, they will be able to generate more credits to use over the following two years to again more easily meet their climate obligations.
It means the loophole could undermine the emissions reduction goals of the first three years of the scheme, and reduce the need for car makers to import more electric vehicles to offset their emissions.
But the government has conceded it won't be able to close the loophole in time before the scheme begins.
There are signs that car manufacturers are considering bringing forward stock to use the loophole.
At a recent industry conference, attendees were advised in a keynote speech that "higher-emitting vehicles should potentially be purchased in the next 12 months".
"Penalties won't begin to be incurred until 1 July 2025," the presentation to the Australasian Fleet Education and Leadership Summit noted.
Car makers have suggested it would be difficult to shift their production lines at such short notice to take advantage of the six-month window.
Government can't close loophole before deadline
The government acknowledged the loophole existed during a debate in parliament, but Transport Minister Catherine King said it would not be possible to close before the scheme began.
"While implementing this would be particularly complex and is not possible by 1 January 2025, the government will look to move to compliance at the point of sale, including through the review of the scheme to be undertaken in 2026," Ms King said.
Australian Automotive Dealers Association chief executive James Voortman said car makers would use the advantages they could to comply, and the loophole should be closed.
"At any stage where you don't have a system which is ensuring the product you are regulating is actually sold, and you're getting that reduction of emissions ... you have to question the integrity of the scheme," Mr Voortman said.
"There are all sorts of tricks manufacturers will play to try and meet their compliance obligations, and by putting the risk onto local businesses, you're just going to potentially create a perverse incentive for those manufacturers."
Mr Voortman said as it stood, car dealers would bear the risks of manufacturers who rush in dirty supply, as they would end up paying finance on those cars for longer if they sat on dealership lots unsold.
Motor Trades Association boss Matt Hobbs agreed it could disadvantage Australian dealers.
"While the loophole remains, government needs to keep a close eye on the data to ensure dealers don't end up 'piggy in the middle', financing cars that get stuck on the lot," Mr Hobbs said.
The NVES was passed in May after failed attempts by previous governments to impose an emissions standard on cars, with Australia one of the last major economies in the world to do so.
The government says Australia's cars already use 40 per cent more fuel on average than European vehicles, and 20 per cent more than in the United States.
Carbon emissions from transport are expected to become the biggest contributor to Australia's emissions by the end of the decade — the government says the NVES will help to halve emissions from new cars over that same time.
Ms King has been contacted for comment.