Drivers stand to save $1,000 a year in fuel as Australia "finally joins the rest of the world" by introducing emissions standards.
The federal government's New Vehicle Efficiency Standards, unveiled on Sunday, are also expected to deliver more choice to new car buyers by encouraging car companies to bring more affordable zero-emission options to market.
Resembling the United States' emissions standard, a fuel efficiency budget and balance sales of dirtier, fuel-hungry cars against low or zero-emission vehicles.
Australia stands alongside Russia as the only advanced economy without an emissions standard.
"The standard increases choice," Transport Minister Catherine King said.
"It doesn't dictate what sort of car or ute people can buy but will mean you have a wider range of modern and cheaper-to-run vehicles."
The government's preferred model would save drivers about $1,000 per vehicle annually and $17,000 over the life of the vehicle by bringing Australia up to the US standard by 2028.
It would also reduce carbon emissions by 369 million tonnes and deliver $5 billion in health benefits from air quality improvements by 2050.
Transport Minister Catherine King said the New Vehicle Efficiency Standards would increase Australian buyers' choice of cars. Source: AAP / Lukas Coch
Consultation on the model and other options will run a month with the changes, which require legislation, likely to take effect from January 2025.
Motoring groups broadly welcomed Sunday's announcement.
The Electric Vehicle Council said the plan meant Australia "finally joins the rest of the developed world on new vehicle efficiency standards".
"Australia has always been at the back of the queue when it comes to the best and cheapest because car makers have been incentivised to offer them elsewhere first," chief executive Behyad Jafari said.
"That should end now with this policy and Australian car buyers should notice the change very quickly."
"A business-as-usual approach meant that Australian families and businesses were not benefiting from the best technology designed to reduce fuel consumption," NRMA Group chief executive Rohan Lund said.
The emissions standards come after the banning of high-polluting vehicles from December 2025.
Automakers will have to meet pollution-cutting Euro 6d noxious emissions standards, which have been adopted by most major car markets including Europe, the US, China and India.
