Why the Clean Vehicle Standard had stopped working

The Clean Vehicle Standard was designed to lower emissions by influencing the type and mix of vehicles imported into New Zealand. It pushed the supply of electric vehicles forward rapidly, but consumers have not shifted at the same pace, and the gap has continued to widen.

For 2025 the standard expects around one in every five new light passenger vehicles to be electric. Actual sales this year are closer to one in every ten. From 2026 the target tightens again to around one in every four new light passenger vehicles.

Importers cannot earn credits when customers are not buying the vehicles that create them, forcing many into costly credit purchases or penalties. At $67.50 per gram of carbon dioxide, industry forecasts show compliance costs are likely to total around $125 million in 2025, rising to around $153 million in 2026. None of this funding goes to Government or to emissions reduction initiatives. It circulates between companies and is ultimately transferred offshore.

“This became a costly compliance market rather than a policy that reduced emissions,” said MIA Chief Executive Aimee Wiley. “Importers unable to earn enough credits have been drained financially, putting vehicle prices at risk and limiting the ability to invest in the technologies that genuinely lower emissions.”

The economic reality behind the crisis

Consumers have continued to shift strongly toward hybrid technology since the Clean Car Discount ended. In terms of emissions reduction, hybrids sit between traditional petrol and diesel vehicles and zero emission models. They offer certainty, fuel savings and practical benefits, which is why they have become the dominant choice in the market.

However, the Clean Vehicle Standard is designed to drive a rapid shift toward zero and very low emissions. Under the current settings many hybrids will attract penalties from 2026. With a large share of the market in the hybrid category and low uptake of electric vehicles expected to continue, the gap between the targets and real-world behaviour is widening.

Electric vehicles remain more expensive upfront, and concerns about total cost of ownership, charging availability, real world range and technology certainty mean many households and businesses are not yet able or ready to adopt them. In a competitive market this is normal demand behaviour and reflects the reality of household and business budgets.

Regulation cannot force consumers to buy a vehicle they do not want or cannot afford. When policy pushes supply in one direction but demand does not follow, strain becomes severe. Prices rise. Choice shrinks. Businesses face increasing costs. Consumers ultimately carry the burden.

That is exactly what has been happening. Without intervention, vehicle prices would likely have risen sharply in the months ahead and many affordable models would have disappeared from the market, while emissions remained largely unchanged.

The Government decision restores stability and supports progress

The Government will temporarily cap Clean Vehicle Standard penalties at $15 per gram for two years. This provides immediate financial relief and market stability while the policy is rebuilt.

“We are not stepping back from environmental goals. We are repairing a system that was costing New Zealand hundreds of millions of dollars without reducing emissions,” said Wiley. “This is climate action that will work.”

A full two-year transition is essential. The first year allows the reset to be completed thoroughly. The second year provides time for legislative changes, public consultation and industry preparation. New vehicles often have long lead times, so the sector needs certainty to plan and order appropriately.

“A shorter or rushed process would risk further disruption,” said Wiley. “A two-year window is needed to rebuild a credible and workable Clean Vehicle Standard.”

What this means right now

For consumers, the reset reduces the risk of sharp price increases and helps preserve choice at a time of real cost of living pressure.

For businesses, it brings immediate relief from unsustainable compliance costs and restores some confidence to plan and invest.

For climate progress, it protects the direction of travel while allowing the rebuild of a system that can deliver real emissions reductions.

“We support progress toward a cleaner fleet, but that progress must be achievable and grounded in real market behaviour. The direction remains toward reducing emissions, but the pathway must be workable,” said Wiley.

“This approach protects consumers today and gives importers the space needed to prepare for a new and improved system. It supports environmental progress and economic stability at the same time.”

Driving progress together

MIA plans to work closely with Government to design a simpler and more effective Clean Vehicle Standard, version two. The goal is a framework that remains ambitious in intent while being grounded in real world demand, supporting customer choice and delivering measurable emissions reductions over time.

“We welcome the Government leadership in restoring balance and setting New Zealand up for genuine progress,” said Wiley. “We will continue placing industry expertise at the centre of decisions that shape the future of New Zealand transport.”

For media enquiries

Aimee Wiley

Chief Executive, Motor Industry Association

Email: aimee@mia.org.nz