IMAGE:Alexander Ruesche/Epa/Corbis

REDUCTION TARGET: A tailpipe spews pollutants along with carbon dioxide emissions in Cologne, Germany.

Come to car-crazy Germany if you want to understand why the European Union (EU) is struggling to reduce carbon emissions. Here's where luxury car manufacturers Audi, BMW, DaimlerChrysler, and Porsche still make their money from selling cars with top speeds of more than 235 kilometers per hour, and where these and other cars continue to tear around the continent's largest race track: the autobahn system.

Transportation is the one sector of the European economy where carbon emissions have been rising rapidly. Motor vehicles generate about one-fifth of the EU's total carbon dioxide emissions, compared with almost a third in the United States.Europe's passenger vehicles alone are responsible for around 12 percent of the EU's carbon output.

Germany is the biggest CO₂ generator in Europe—a status the European Commission wants to change. It has told the country to reduce its annual carbon-emission level to 453 metric tons from the 482 proposed by politicians in Berlin. And, in particular, the commission has pointed a finger at the country's powerful car-manufacturing sector, threatening to present automakers there and across the EU with a mandate to sell lower-emission vehicles.

A commission proposal is now on the table that calls for a legally binding limit of 130 grams per kilometer for the average new car fleet built from 2012 onward. The plan for a mandatory cap comes after years of bickering over a voluntary limit, which the commission argues has failed.

Under an agreement struck with the commission in 1998, European manufacturers voluntarily pledged to reduce emissions from new cars to 140 grams per kilometer (what you'd get from a car with an efficiency of about 39 miles per gallon) by 2008, or by about 25 ­percent of 1995 levels; Japanese and Korean makers exporting cars to the EU agreed on the same target, but by 2009. Manufacturers have struggled to meet those pledges. Last year, average emissions from new cars sold in the EU were still 160 grams, according to the European Automobile Manufacturers Association—down from 186 grams in 1995 but still 20 grams shy of the agreed target just one year away.

The 130-gram limit that the commission now proposes is a compromise. The commission initially wanted 120 grams, corresponding to fuel consumption of 4.5 liters per 100 kilometers for diesel cars and 5.1 liters for gasoline cars. But intensive lobbying by European carmakers prompted the EU executive arm to agree to the higher limit as part of a deal that calls for a further cut of 10 grams shared with tire makers, fuel suppliers, drivers, and public authorities, as well as manufacturers. Rather than focusing solely on improvements in car technology, the shared approach would promote the use of alternative biofuels, introduce CO₂-based taxation of vehicles and fuels, create programs to change consumers' driving habits, and introduce traffic-control systems to avoid congestion.

A strict emissions cap of 120 grams would rule out most models that carmakers Audi, BMW, and Mercedes now produce, not to mention Porsche, the biggest carbon emitter. Only three European manufacturers—Fiat, Renault, and PeugeotCitroën, which build smaller cars—are currently on track to meet the 2008 voluntary target of 140 g/km, according to the Federation of Transport and Environment, a nongovernmental organization. The Citroën C1, for instance, emits just 109 grams. The Society of Motor Manufacturers and Traders, in the UK, warns that tech­nology required to meet the 120 g/km target could add as much as €2500 (US $3322) to the price of certain cars—and hurt sales. Other experts have put the figures as high as €4000.

Criticism of the auto manufacturers has come from many quarters. “The car industry has to watch out that it doesn't throw away its future,” says Reinhard Bütikofer, the chairman of Germany's opposition Green Party. Arndt Elling­horst, head of automotive research at the investment bank Dresdner Kleinwort, in Frankfurt, warns that many top auto executives in Europe, particularly Germany, are engineers who get excited about size, acceleration, and torque and are quickly annoyed by talk of climate change. That mind-set, he said, “will have to change.”

The European Parliament and the European Council, representing the heads of the 27 member states, are to vote on the commission proposal later this year, with a law expected in early 2008.

The big German manufacturers, as well as U.S. carmakers Ford and General Motors, which have extensive manufacturing operations in Europe, have cautioned the EU that its carbon emission plan for cars could force them to cut jobs or move to low-cost countries to cope with rising costs and a tough consumer market. The European auto industry employs 6 million people, most of them in Germany, France, Italy, and Spain.

But even as manufacturers complain, they are designing fuel-efficient, low-emission vehicles, and some are already delivering innovative concepts. This year's Geneva Motor Show was full of cars that have gone green, including ones running on natural gas, electricity, biofuels, batteries, and solar power.

DaimlerChrysler unveiled Bluetec, a new generation of clean diesel engines. The company showed how its new ­emission-control technology, in combination with a ­consumption-
optimized four-cylinder diesel engine, can lower emissions while increasing gas mileage. German carmakers and their European rivals continue to promote diesel over hybrid gasoline-and-electric auto­mobiles, like the Toyota Prius.

Sweden's Saab, which is owned by GM, showed off the BioPower Hybrid Concept, one of the world's first vehicles to combine a fossil fuel–free ­bioethanol fuel (E100) capability with electric-only propulsion.