Australia needs to improve lax fuel efficiency standards after the Volkswagen emissions scandal or face the prospect of becoming a dumping ground for high-emissions vehicles, advocates have warned.

Pressure is mounting on the federal government to tighten legislation governing vehicle emissions standards. Australia is the only advanced economy not to have limits on the amount of carbon dioxide vehicles can omit, although there are restrictions on the amount of nitrogen oxide and carbon monoxide that can be released.

The independent senator Nick Xenophon has called for harsh penalties for manufacturers that deliberately “game” the system.

“If a company is out by more than 10% in its claims, then you ought to be looking at redress for consumers and the companies to face a major fine,” he told Sky News on Tuesday.

The penalty for car manufacturers who deliberately fudged the figures could be as much as $50m, he said.

The Greens have legislation in a Senate committee that would raise the emissions standards to European Union levels. The legislation would see two separate targets, of 130g of carbon dioxide per km by 2020 and 95g of CO 2 / km by 2023.

“Australia’s fuel efficiency standards lag behind the rest of the world. By accepting such a low bar we’re forcing ourselves to spend more on petrol and generate more pollution than new car drivers in Europe, China, India and Japan,” the Greens leader, Richard Di Natale, said.

“I’m calling on the Liberals, Nationals and Labor to support the Greens’ bill to bring Australia’s car fuel efficiency into line with European standards. Both the major parties have identified vehicle emissions as an easy target for cutting pollution and lowering the cost of living, so let’s do it.”

Matt Levey, from the consumer group Choice, said Australia had become an easy target for carmakers to offload inefficient vehicles because of its lax emissions standards.

“We’re already a dumping ground, to a certain extent,” he said.

He has welcomed calls for Australian vehicle emissions levels to fall into line with comparable countries.

“It absolutely makes sense to look at what local markets have done,” Levey said. “If it’s good enough for them, it’s good enough for us.”

Concerns about the impact that tighter standards would have on local carmakers have been a sticking point for governments in taking action, but with the last Australian-made cars due to roll off production lines in 2017, the political barriers to changing efficiency standards have all but been removed.

“It has been an excuse; it has been a very political debate,” Levey said. “But the excuse is definitely over.”

Xenophon said the sneaky tactics used to meet emissions standards, including using high-powered lubricant and low-tread tires and even removing backseats in order to make the vehicle lighter, have been starkly exposed by the VW scandal.

Earlier this month, the United States Environmental Protection Agency discovered that 482,000 of the German manufacturer’s diesel cars on American roads were releasing up to 40 times more toxic fumes than legally allowed.

VW has since admitted that 11m cars worldwide could have been fitted with the software designed to cheat emissions standards, although the Australian arm of the company could not confirm whether vehicles sold in Australia were among that number.

VW’s market value has dropped by €25bn since the scandal broke.

The company admitted that millions of vehicles made by its subsidiaries, such as Audi, Skoda and Seat, have been a fitted with the cheating technology, and criminal proceedings against VW group’s former boss, Martin Winterkorn, began in Germany on Monday.

Levey has warned that the VW scandal “may well be the tip of the iceberg”, and has called on greater transparency from all car manufacturers exporting to Australia.