Reducing transport emissions is fast approaching as the next big issue in Australia’s climate debate.

Emissions reduction policy has largely focused on the energy sector, which was on display in the 2025 federal election with competing policies on renewables and nuclear energy. Even the current debate about net zero is largely a debate about the cost of electricity.

This is no surprise, as the electricity and energy sector is Australia’s largest source of emissions and is expected to do the heavy lifting in terms of providing emissions reductions under both the 2030 and 2035 emission reduction targets.

But when you combine declining energy emissions with growing transport emissions, it places transport on track to become Australia’s largest emitting sector by around 2030.

Transport is fundamental to the Australian economy – connecting goods with markets, connecting people with services and communities and enabling other sectors in the economy to operate.

Despite this fundamental nature of transport and its rising prominence in terms of emissions, Australia has an approach to transport emissions policy which is patchy at best.

There are three main approaches in place. The New Vehicle Efficiency Standard imposes a limit on CO2 each year across the fleet of light vehicles that a supplier brings into the Australian market. This limit is reduced over time. It only applies to light vehicles, and the case about a possible extension in scope will need to be considered.

The Safeguard Mechanism requires Australia’s largest emitting facilities to reduce emissions at or below a declining baseline. This captures significant non-road transport emissions, including major aviation and rail operators. But it creates an increasing risk that emissions reduction policy will push freight from rail to road, and actually increase emissions.

The third main approach is around encouraging new sources of transport energy, especially for harder to abate transport sectors such as heavy vehicles. Initially, this saw significant focus on hydrogen, and more recently the focus has been on low-carbon liquid fuels.

This third approach is where the focus has been for heavy vehicles, but it comes with significant disadvantages. It is a form of picking winners that fails to recognise the likely role that electrification will play in freight tasks where the technology is feasible. Not every freight task is a road train with three trailers on the highway to Darwin.

Encouraging supply does not guarantee demand, and it certainly does not guarantee which sectors will utilise that supply. Just because Australia might one day produce low carbon fuels, and has a need for them to decarbonise our freight networks, does not guarantee that we end up with renewable diesel in the fuel tanks of Australian trucks.

Take for example the recent investment announcement of just over $1 billion for low-carbon liquid fuels. It is worthwhile developing Australian production of these fuels, yes, but that does not guarantee emission reductions from heavy vehicles. What is to stop Australian low-carbon liquid fuel production supplying overseas markets? What will the balance of production be between sustainable aviation fuel and renewable diesel for trucks and freight trains?

There are other complementary approaches when it comes to heavy vehicle emission reductions. Improving heavy vehicle productivity reduces emissions, by reducing fuel use and slashing the number of individual truck trips required to move the overall freight task. This is important, but in light of the increasing amount of freight being moved, the experience to date is that it slows the increasing rate of transport emissions. However, it won’t deliver net zero on its own.

The freight sector has advocated for significant incentives to deploy heavy zero-emission vehicles. Government funding to date has delivered key pilots and projects, but these have been concentrated to big logistics firms. In an industry where more than 97% of businesses are small businesses, it is not enough. Better and temporary support to launch this new market is long overdue.

There is also a case for improving the operational gains that can be achieved by operating zero-emission commercial vehicles, such as through removing curfews and expanding access to delivery zones.

However, all of this still leaves a significant policy gap, especially when it comes to heavy vehicles and existing road vehicles.

The New Vehicle Efficiency Standard and Safeguard Mechanism don’t seek to reduce emissions by picking technology winners – instead they regulate the actual issue by imposing declining CO2 limits.

A Low Carbon Fuel Standard would extend this approach and fill in many of the transport emission policy gaps, especially for heavy vehicles. A Low Carbon Fuel Standard would apply a declining CO2 target to the provision of fuel, but enable suppliers flexibility to meet these targets.

In California, a Low Carbon Fuel Standard has driven increased supply of both biofuels and renewable diesel. The Californian scheme has delivered a 13% reduction in the carbon intensity of fuel while only adding 17-23 US cents a gallon.

Research by the International Council on Clean Transportation shows that amendments to the Californian scheme could be used to drive significant investment in electric vehicle charging infrastructure and point of sale vehicle purchase incentives.

By applying a declining CO2 target on fuel supplies, we can tackle some of the largest policy gaps in reducing transport emissions. We can increase the domestic supply of low-carbon liquid fuels and increase the supply of electric vehicle charging infrastructure. This is a genuine technology neutral approach that allows the market to sort out the best solutions for each specific transport task.

It would put in place a comprehensive approach to reducing transport emissions, with declining CO2 targets on the largest emitters, on new light vehicles, and on fuel. The current federal parliament should get the job done and legislate a Low Carbon Fuel Standard.

The views expressed in this article may or may not reflect those of Pearls and Irritations.