Diesel cars to get £2,500 grant if they cut emissions

Makers of ultra-efficient petrol and diesel cars could soon get government grants as high as £2,500 per vehicle under a radical overhaul of the "green cars" funding scheme.

The Energy Savings Trust, which promotes energy-efficiency programmes, is drafting proposals for a new initiative to reward any car which manages deep cuts in its CO2 emissions - regardless of its fuel or engine type.

The trust would, in effect, scrap its current Transport Energy scheme, which spends £20m a year on grants for new technologies and fuels, such as battery-petrol hybrids, liquid petroleum gas (LPG) and fuel cells. Instead, the new scheme, due to start in 2005, will give grants to any vehicle which has low CO2 emissions compared to other cars in its class. Grants could be given on a sliding scale - so a car which cuts emissions by 20 per cent could get £1,000 but a car that cuts emissions by 50 per cent would get £2,500.

The review, which will start early next year, follows the trust's admission last week that this year's £20m pot for Transport Energy grants had run out, forcing it to reject new grant applications. De- mand for LPG vehicles has surged more than expected this year because they do not have to pay the London congestion charge, it said.

The trust will revamp the current scheme next year - probably cutting the grants it pays out. The long-term reforms will revolutionise the market for fuel-efficient cars, but they will also provoke debates among car makers, oil companies and environmental groups over whether cars should be forced to meet tough air pollution targets as well.

Toyota, which is unveiling its new ultra-efficient Prius saloon in January, and the LPG Association fear the new scheme could favour diesel cars even though they are more polluting. Toyota also argues that smaller diesels, such as the Yaris D4D, are already highly efficient and are selling fast, so do not deserve government grants.

Julie Foley, a transport analyst with the Institute for Public Policy Research, said the reforms would cut demand for LPG, which gets 80 per cent of the trust's grants but is only marginally more efficient than diesel.