Motorists will save more than $500 a year on fuel if the federal government acts on a proposal to introduce a new fuel efficiency standard.
The finding, contained within the Turnbull government's long-awaited review of climate change policies, projects economic benefits of up to $14 billion if the new standard is fully implemented by 2025.
Savings would be made to household budgets through all new small cars being required to run on cheaper, more efficient fuel, while the economy would pocket $50 per tonne of carbon not released into the atmosphere.
Australia is playing catch-up on the policy that environmental groups have been calling for since at least 2014, with two of the world's largest car markets - Japan and the US - already implementing restrictions and encouraging manufacturers to build cars for their markets worldwide.
Cars are by far the largest contributors to Australia's transport emissions according to new figures released by the Department of Environment and Energy on Tuesday, making up to half of all transport emissions per year.
The Department of Environment and Energy found Australia could take better advantage of new technology allowing for the creation of low-carbon fuels from waste products such as plastics and timber off-cuts, while also exploring ways to use this fuel on planes and ships.
But fuel-powered cars could be on the way out by the time the policy is fully implemented after the review found the number of electric vehicles on Australian roads is expected to soar from 0.3 per cent of all new vehicles in 2020 to 15 per cent in the following decade.
If the extraordinary rate of growth is realised it will put more than 1 million electric vehicles on the road by 2030.
Tuesday's assessment from the government suggests Australia's overall emissions are flat-lining, but omits crucial figures that show the country would have to go into an emissions nosedive to meet its target of a 28 per cent reduction by 2030.
"Emissions per person and the emissions intensity of the economy are at their lowest levels in 28 years," the report found.
Figures released in a separate data wave and quietly uploaded to the department's website shows Australia will be more than 140 mega tonnes above its target by 2030 at the current rate of growth.
Prime Minister Malcolm Turnbull told reporters in Sydney his priority through the national energy guarantee was "to keep energy affordable and reliable at the same time as meeting emissions reductions".
The review allows for increases to baseline emissions when businesses require it and takes pro-market approach to environmental policy.
"We will meet our 2030 target and we will do so without compromising economic growth or jobs," the report states.
"This would see baselines increase with production, supporting business growth. Conversely, if production falls, the baseline would automatically fall in proportion."
Greens climate change spokesman Adam Bandt labelled the report "pure propaganda".
"The public shouldn't be paying polluters to keep on polluting," he said.
Business Council of Australia chief executive Jennifer Westacott welcomed the findings and said it was time for the country to meet its international targets.
"After a decade of petty politics what Australia needs now is a bipartisan focus," she said.
"The states as well as federal political leaders must work together not just to get the policies right and meet our targets, but to give businesses the long term policy certainty they need to plan and invest in innovative and more efficient technologies."
The government is expected to develop next year a long term emissions reduction strategy to meet its 2020 and 2030 targets.
