The Government believes new compulsory fuel economy labels will mean less gas guzzling vehicles will be imported into New Zealand.

It has launched the new initiative which will give each vehicle a star rating, similar to those used on new household appliances. It will also estimate the yearly fuel cost, based on an average fuel price and distance.

The system applies to vehicles imported since 2005 and those manufactured since 2000. It takes effect from April 7.

Energy and Climate Change Minister David Parker says people want to save money and will therefore purchase a vehicle that is going to be cheaper to run. He says the labels are estimated to cut fuel usage by seven percent.