One area where I think public policy could really help sustainability in Australian cities is by making cycling an easier transport choice. Sydney strikes me as crying out for measures to encourage cycling. Cycling could really be a big part of the trasport mix here - yes some of the city is hilly but you've got probably 3 million people living within very easy cycling distance of the CBD. But it's just not a cycling friendly city.
One very simple measure I've just heard about is the Idaho Stop Law, in place in Idaho since 1982. Quite simply, cyclists can treat stop signs as give way signs (they must give way but needn't come to a complete stop) and red lights as stop signs (they must stop but can then proceed if nothing's coming).
In the first year it was introduced in Idaho, cycling injuries apparently dropped 14.5%. Michael Giberson at Knowledge Problem suggests part of the reason this law improves safety is that it reflects what many cyclists do anyway and so it aligns the expectations of cyclists and drivers.