Over the past five years, the industry has achieved a reduction of more than ten percent in average emissions.
In 2007, new vehicles recorded an average of 226.1 grams of CO2 per kilometre, this is down from the 2006 figure of 230.3 grams.
This is in contrast to many other countries, particularly in Europe, where emissions have remained almost unchanged.
The FCAI monitors a voluntary code endorsed by the industry which aims to improve the environmental performance of vehicles in Australia, aiming to reach its target of an average of 222 grams of CO2 emissions per kilometre by 2010.
This figure equates to progressively improving fuel consumption for new petrol passenger vehicles to an average of 6.8 litres per 100 kilometres by 2010.
"These figures demonstrate that the industry is continuing to implement new technology to lower the impact passenger cars have on the environment," said FCAI chief executive Andrew McKellar.
An important element in further reducing vehicle emissions in Australia will be the enhanced availability of more advanced fuels - this includes hydrogen fuel cells and 'new generation' renewable biofuels.