The European Commission on Wednesday proposed rules to reduce the average carbon dioxide (CO2) emissions from new passenger cars to 120 grams per kilometer by 2012.
Under the proposal, automakers that sell cars in the EU will be required to cut CO2 emissions from today's 160 grams per km to 130grams per km on average by 2012.
A reduction of a further 10 grams per km will be contributed by parts and fuel makers through technology improvements and the use of more biofuels.
Under the proposal, light carmakers will need to do less while heavy automakers will have to do more. But different carmakers are allowed to pool their targets.
Cars that exceed the 130-gram-per-kilometer CO2 emission target will still be allowed so long as the carmakers compensate with lighter, more fuel-efficient models.
From 2012 fines will be imposed on carmakers that exceed the average CO2 emission targets. The fines start at 20 euros (29 U.S. dollars) per gram of CO2 over target and will grow to 95 euros (137 dollars) in 2015, said EU Environment Commissioner Stavros Dimas at a press conference.
The proposal is a major step toward lowering the overall CO2 emissions of cars in the EU, he said.
While CO2 emissions in non-transport sectors have dropped in the EU in the past decade, emissions from cars have been on the rise, offsetting the EU's efforts to reduce greenhouse gas emissions, said Dimas.
Passenger cars currently account for about 12 percent of the EU's overall CO2 emissions.
The proposed measures would represent a 19-percent cut in passenger car CO2 emissions, said Dimas.
European Commission President Jose Manuel Barroso said "this proposal demonstrates that the European Union is committed to being a world leader in cutting CO2 emissions and the development of a low carbon economy."
"At the same time, we are committed to promoting the competitiveness of our industry and its global technological leadership," Barroso added.
The proposed legislation needs to be approved by the European Parliament and the EU's 27 member states before it can come into force.