Drivers will save about $1000 a year under proposed fuel efficiency standards set to slice emissions of Australia's new cars and utes by 60 per cent.
The proposed standards, unveiled on Sunday, are expected to also deliver more choice to new buyers by encouraging car companies to bring more affordable low and zero-emission options to market.
The move was broadly welcomed by motoring groups, but manufacturers cautioned the aim to match US standards by 2028 was "very ambitious".
Under the new rules, the car industry will need to balance sales of dirtier, fuel-hungry cars against low or zero-emission vehicles.
One emissions budget would exist for new passenger vehicles including SUVs, and another higher target for new utes and vans weighing up to 4.5 tonnes.
Over-achieving manufacturers, such as all-electric car companies, could sell credits to underachievers who face fines if unable to keep to limits.
All new car buyers are expected to benefit, with the average saving topping $1000 per vehicle annually and $17,000 over the life of the vehicle from 2028.
Regional and rural drivers could save up to twice that due to longer distances travelled.
The policy also ensures Australia leaves Russia as the only advanced economy without an emissions standard.
The NRMA, which had backed Australia following the US scheme, said the nation could not continue down the path of voluntary targets.
"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 lack of standards had incentivised car makers to offer the best and cheapest EVs elsewhere first, the Electric Vehicle Council said.
"Australian car buyers should notice the change very quickly," chief executive Behyad Jafari said.
Manufacturers welcomed the step forward after years of demanding standards, but said it appeared "very ambitious" to set targets to reduce emissions by 60 per cent in five years, three times faster than the current trajectory.
"On the surface, the targets seeking a 60 per cent improvement in emissions are very ambitious," Federal Chamber of Automotive Industries chief executive Tony Weber said.
"It will be a challenge to see if they are achievable taking into account the total cost of ownership."
The standards, which are the preferred model of three put forward by the federal government, would also deliver $5 billion in health benefits from air quality improvements by 2050.
The transport sector makes up 21 per cent of Australia's emissions, a rising proportion as the electricity sector rapidly decarbonises.
Consultation on the policy will continue for another month with the changes, which require legislation, likely to take effect from January 2025.
The standard would increase choice and deliver significant savings to consumers, Transport Minister Catherine King said.
"This isn't about one type of vehicle, it is about all vehicles, making sure that all vehicles that we get in Australia are as efficient as possible," she told reporters.
The Opposition said it would not tolerate any further pressure on family budgets at a time when Australians are already struggling.
"Australian families can only save on fuel ... if they can afford to purchase expensive EVs in the first place," transport spokeswoman Bridget McKenzie said.
The efficiency 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.
