The European Commission has ordered car manufacturers to cut CO2 emissions by 18 per cent over five years to help tackle climate change.
Brussels said EU-wide legislation was needed because the industry had consistently missed voluntary targets to curb CO2 emissions in cars.
The EU executive announced the new limits yesterday after a bitter two-week internal battle between commissioners over the scope of its car emissions policy.
Environment commissioner Stavros Dimas had sought a 25 per cent cut in CO2 per kilometre for new cars by 2012 while industry commissioner Gunter Verheugen warned this could fatally undermine the EU car industry.
German chancellor Angela Merkel also joined car manufacturers in lobbying hard against the commission proposal, which will penalise companies that fail to meet the strict new requirements. All 27 EU commissioners finally agreed a compromise yesterday that will commit the automotive industry, other related industries and EU states to reduce car emissions by 2012.
Over the next five years manufacturers will have to reduce the average level of CO2 emitted by cars to 130g/km , compared to a current average of 162g/km.
A further 10g/km reduction in CO2 emissions must also be achieved through complementary measures, such as reducing the carbon content of road fuels and improving the efficiency of tyres and air-conditioning systems in cars.
The commission will also encourage member states to levy car taxes based on CO2 emissions and improve labelling to help consumers who want to choose more fuel-efficient cars.
Mr Dimas, who says he is considering switching to a Japanese hybrid car himself, warned that without the proposed action on car emissions, the EU would not be able to meet its commitments under the Kyoto Protocol.
But the car industry warned the legislation would push up the price of cars by up to €4,000, damage the economy and cost thousands of jobs.
"At least 12 million EU workers and their families count on a balanced policy on CO2 emissions from cars," said Sergio Marchionne, president of the European Automobile Manufacturers Association.
"If left unchanged, the commission proposal would erode the economic strength of Europe." However, environmentalists criticised the commission for watering down its earlier proposal to set a specific 120g /km limit for the car manufacturers.
"By scaling back its proposals on CO2 emissions from cars, the commission has once again confirmed that the bottom line of the German car industry takes priority over tackling climate change," said Green MEP Claude Turmes.
Industry commissioner Gunter Verheugen said he totally rejected this allegation. The EU proposal was the most ambitious in the world and would remain so for a very long time, he claimed.
He also said the commission would also take account of the competitive pressures facing different sectors of the industry. For example the small- and medium-sized car industry in Spain faced much tougher competitive pressure than luxury car manufacturers in Germany, he added.
The commission said it hoped to present its legislative proposal later this year or in early 2008.