The European Commission will propose next week to set carbon dioxide targets for cars based on their weight as sought by German carmakers, although some key points still have to be ironed out, officials said.
Under plans from the Commission, new passenger cars would be required to emit on average no more than 120 grammes per kilometre travelled as of 2012, which would represent a cut of about 25 percent from current levels.
Automakers would be required to limit average emissions across their fleet to 130 grammes per kilometer by improving the technology they use.
A cut of a further 10 grammes will be sought through improvements to air-conditioning systems, tyre pressure monitoring and gear shift indicators, while the use of biofuels would also be stepped up.
The issue has pitted countries that make big petrol-guzzling cars like Germany and Sweden against countries that make smaller more fuel-efficient cars such as France, Italy, Romania and Spain.
According to a study from pressure group Transport and Environment, French and Italian manufacturers' cars emitted 144 grammes on average in 2006 compared with 173 grammes for German carmakers.
The French and Italian carmakers reduced their average emissions by 1.6 percent between 2005 and 2006 while they increased 2.8 percent for German giant Daimler.
However, the Commission will propose on Wednesday targets based on cars' weight, as German carmakers want, rather than on other technical criteria such as a car's wheelbase, or the distance between the axles.
"The weight is the easiest way" to set the limits, according to Sigrid de Vries with European carmakers association ACEA.
However, Joe Dings, with lobby group Transport and Environment, said that assigning emissions targets to cars based on their weight was "counterproductive."
"It's because carmakers have failed to reduce weight that some models' fuel consumption has not gone down," he said.
The other sensitive issue to be resolved is how much carmakers must pay if they do not meet the targets in 2012.
"If carmakers do not respect the limit, they will have to pay compensation. Otherwise the system would not be very credible," European Commission President Jose Manuel Barroso said.
Figures ranging from 30 to 90 euros (44-142 dollars) per gramme of CO2 over the limit per car sold are circulating as possible penalties.
The most sensitive points of the shake-up could be decided on Wednesday shortly before the proposals are made public.
However, that will only be the beginning of the road as the proposals will then have to be accepted by the European Parliament and EU member states.
The Commission deemed the binding emissions targets necessary after European, Japanese and Korean manufacturers failed to meet a voluntary target to cut average emissions for new cars sold in Europe by 25 percent from 1995 levels.