The German government's ministry of the environment is planning to replace existing car taxes with a new system based on CO2 emissions.

Deputy environment minister Matthias Machnig told a German radio station that the new law could be introduced as early as this year.

The automotive industry in Germany, backed by the Verband der Automobilindustrie (VDA) and the European automotive industry trade association, ACEA, have been calling for fiscal incentives to encourage consumers to buy more environmentally-friendly cars and help even out some of the price differential that occurs because of the additional costs of environmental technologies.

Consultations on the new tax system have already begun. Any changes to the system would have to be agreed to by the individual German states. At the moment the annual car tax is linked mainly to engine size.

According to Spiegel magazine, the new tax system would be designed to be revenue-neutral over a six-year period.