An increasingly ambitious target for reduced CO2 emissions demanded by the European Union (EU) is bringing significant change to the motor industry, according to analyst Jato Dynamics.

Now it is high on the political and social agenda, CO2 emission is currently the hottest topic for the motor industry, Jato said.

Sales and marketing director Nasir Shah said the proposed 130g fleet average has attracted a mixed reception from the industry.

“It’s an emotive subject and highly complex but one thing is for sure, this is not a topic that is simply going to go away and we are already witnessing an industry undergoing significant change. That was very apparent at the recent Geneva motor show.

“Clearly, the industry has invested vast sums in reducing emissions in recent years and it’s easy to lose sight of the progress that has been made. Progress will continue to be made but it’s hard to imagine the EU objectives can be fully met throughout the industry,” added Shah.

“Objectively, the automotive industry seems to be shouldering a sizeable slice of the environmental burden.”

Jato data showed that 2006 European average motor vehicle CO2 emissions were about 30g above the earlier objectives set by the EU despite the fact that levels across Europe have actually fallen yearon year since 2001.

Vehicle makers’ significant investment in hybrid and alternative technologies in recent years is testament to the shift in emphasis on product development, but while, those products are enjoying some success, many consumers remain unconvinced, Jato reckons – its data shows the eco-friendly and market-leading Toyota Prius still has less than a 0.18% share of the European new car market.

However, the continued pressure on certain vehicle segments will undoubtedly bring about change. “If taxation law continues to penalise the worst performing vehicles, consumers will vote with their feet,” said Shah.

“We are already seeing a trend towards SUVs with two-wheel drive as standard fitment [most European SUVs have 4WD as standard and 2WD was until recently rarely offered], while the traditional large petrol engines in these vehicles are being replaced with more fuel-efficient diesel units.

“So long as buyers can keep the chunky looks, they’re happy to compromise on true off-road capability.”

In the UK, the Chancellor’s [finance minister] declaration in his recent budget that the road fund licence will rise to GBP£300 [about $US590] for the worst performing vehicles may well be enough to force numerous consumers into more efficient cars, Jato said.

With relatively few vehicles currently meeting EU objectives, Jato’s data highlights the significant challenges facing manufacturers but it says the industry continues to respond to the environmental challenge with admirable conviction.