Other measures being considered are improving the quality of fuel sold at service stations, and upgrading existing air pollution standards.
While motorists could save more than $500 per annum on fuel bills with more efficient vehicles and higher-quality fuels, forcing manufacturers to sell cars, buses and trucks with more efficient engines could drive vehicle prices north by up to $2000, by 2025 - if brands pass the full cost of these measures onto buyers.
Improving the quality of fuel sold in Australia would also see fuel prices rise, which again negatively impacts the consumer despite the reductions in CO2 and NOx pollutants.
Reports indicate that these proposals, if implemented, would help Australia meet its Paris climate-change commitments by removing around 65 million tonnes of pollution from the atmosphere.
Above: A Toyota Corolla fitted with an emissions-testing device
They have been met with some scepticism, however, with the Australian Automobile Association (AAA) urging the government to seriously evaluate the pros and cons of implementing these standards, particularly with regards to consumer spending.
"The AAA encourages the Government to credibly identify all of the costs and benefits associated with these proposed changes, as motorists deserve a clear explanation of how any fuel and car price increases will affect household budgets," the AAA said in a statement.
"AAA supports efforts to reduce vehicle emissions, however neither consumers, nor the environment, benefit from symbolic regulation that drives up costs for consumers, while delivering emissions abatement only in a laboratory."
In a statement to the Australian Financial Review, Infrastructure Minister Paul Fletcher and Energy minister Josh Frydenberg said: "By requiring global automotive manufacturers to supply vehicles in Australia with more-fuel-efficient engines – as they are now doing in many other countries – these new standards could cut consumer fuel spending by up to $28 billion by 2040," Infrastructure Minister Paul Fletcher and Mr Frydenberg said in a joint statement."
Another issue raised is the impact the changes will have on local oil refineries, which will likely need to upgrade current infrastructure and pass on the cost to consumers.
In its draft impact statement for the proposals, the Australian Institute of Petroleum says higher fuel quality could "threaten the economic viability of Australian refineries".
Even with more fuel efficient cars, it would take motorists around four years to make up the extra costs to buy it in the first place, or about 57,000 to 62,000km of driving.
A discussion paper released by the government earlier this week notes a significant increase in Australia's fuel consumption between 2010 and 2014, while automotive fuel is a significant source of harmful NOx emissions - which is understood to contribute to numerous health conditions including reduced lung function, stroke and lung cancer.
"Unless further action is taken to improve the management of vehicle emissions, air quality is likely to decline in the medium to long term. This will adversely impact on the health of Australians," the paper said.
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