Abstract: In the year to December 2013, emissions from Australia's transport sector increased by 53.5% compared to 1990 levels. The domestic transport sector now accounts for over 70% of liquid fuels consumed in this country, with passenger vehicles being the largest source of emission in this sector. Currently, the Australian Government has no fiscal instruments for mandatory fuel efficiency or carbon emission targets to reduce road transport emissions. Part 1 of the two-part series provided ex-post evidence that reforming vehicle purchase taxes/stamp duty differentiated on the basis of CO2 emissions was an effective measure to significantly reduce road transport emissions. In 2009, the Council of Australian Governments (COAG) recommended that vehicles purchase taxes be reformed on the basis of new vehicles' "environmental performance", and proposed the Australian Capital Territory's (ACT's) vehicle purchase tax/stamp duty as one model for this approach. However, the 2010 Henry Report rejected COAG's recommendation. This article revisits the COAG's recommendations and provides an analysis for Australia's policy makers on whether the tax design and price signal of ACT's vehicle purchase tax provides a model to be adopted by the rest of Australia, or whether an alternative instrument is recommended. The literature review suggests that to achieve significant reductions in average CO2 emissions from new light vehicles will depend on the choice of tax design, a strong up front price signa4 level of tax differential, public acceptance, and the interaction of other complementary tax policy measures. The article will assist policy makers in designing tax policy measures for the proposed Energy White Paper in 2015. In turn, this proposal will meet the objectives outlined in the Issues Paper that is, to encourage a behavioural change in buyers that could lead to their choosing fuel - efficient, low - carbon emitting new vehicles, as well as to help address the barriers and challenges to reforming vehicle purchase taxes/stamp duty.