Tax breaks for plug-in hybrids will be ended by 2025 and discounts that will cut the price of popular electric and low emissions cars are set to pass parliament after crossbenchers agreed to a deal with Labor.
The "electric car discount" policy was a Labor election promise and the legislation aims to make an EV, such as the Nissan Leaf, up to $2,000 cheaper for Australians and $9,000 for employers who run fleets.
It will do this by exempting eligible low-emissions vehicles from import charges and fringe benefits tax.
The Coalition opposes the policy, which is estimated to cost the budget $4.5 billion over the decade to 2033, and the legislation has been stuck before the Senate due to a dispute with the crossbench over plug-in hybrids.
Plug-in hybrids have an electric charger and an internal combustion engine.
The Greens and independent senator David Pocock had argued their inclusion in the scheme is effectively a new fossil-fuel subsidy, while Treasurer Jim Chalmers had insisted they be retained for people in regional areas to ease concerns about the range of low emissions cars.
Under a compromise struck this week, plug-in hybrids will be phased out of the scheme by April 2025.
The crossbench also expects the government to only buy internal combustion and plug-in hybrid cars for the Commonwealth's large fleet in exceptional circumstances.
"The government has worked in good faith with the crossbench on amendments," Mr Chalmers said.
"These changes are a win for motorists, a win for business and a win for climate action."
As part of the agreement, the tax office will also issue new guidance on when home charging infrastructure, which can cost thousands of dollars, can be claimed.
"The government fleet will go electric and when these cars are sold second-hand it will help bring the cost of EVs [down] for everyday people," said Greens leader Adam Bandt.
The bill is backdated to July 1 this year and car dealerships, as well as electric car groups, have been urging parliament to reach a deal as swiftly as possible.
The industry had been advocating for the temporary inclusion of plug-in hybrids, in part due to the global shortage of electric vehicles and the enormous wait times for some models.
"Bold and decisive action is needed to address high EV prices," said Senator Pocock.
"This provides fleet companies certainty and allows the government to deliver on their promises around delivering charging infrastructure over the next three years."
Electric car groups now want fuel efficiency standards
Electric vehicle groups and environmental lobbyists have long argued that the much bigger test for EVs and low emissions cars is the introduction of fuel efficiency standards.
Efficiency standards are put on the overall fleet of vehicles that manufacturers sell in a nation — and those that exceed the standard are penalised.
The tougher the standards are, the more car makers are encouraged to supply electric vehicles or low emissions options.
Energy Minister Chris Bowen is a fan of them and released a discussion paper in September.
The government argues standards will be key to boosting the availability of certain car models in Australia and ensuring manufacturers send more EVs Down Under.
About 3 per cent of cars sold currently are electric, lagging behind many other developed nations.
Electric car lobby groups argue that's unlikely to be an accurate reflection of demand because the waiting lists for some popular models are very long.
Beyhad Jafari from the Electric Vehicle Council said although the bigger challenge is still to come, today's decision was a good first step.
"The passing of the EV discount bill is a great achievement for Australia that shows our country is finally at the wheel and taking this issue seriously," he said.
"Combined with far lower running costs, this move will make driving an electric car the more affordable option for many Australians."
