The European Commission has announced plans to force energy companies to produce greener fuels.
The new fuel quality rule could save 500m tonnes of CO2 by 2020
It says it will propose amendments to a directive on fuel quality, which will require a 10% cut in the CO2 released during production and use of the fuel.
The changes would make companies use more biofuel, and develop greener biofuels where the production process results in lower CO2 emissions.
The commission says its plan would save 100m tonnes of CO2 a year by 2020.
The announcement comes as commissioners argue over another proposal which would force carmakers to drastically increase the fuel efficiency of the average car sold in Europe.
Environment Commissioner Stavros Dimas has been pressing for binding legislation to ensure that new cars produce a maximum of 120g (0.2 lb) of CO2 per kilometre by 2012, compared with 162g on average in 2005.
The plans to improve fuel quality and cut car emissions are both regarded as key steps towards cutting down on emissions from the transport sector, which threatens to derail EU plans to cut greenhouse gas emissions by 20% by 2020.
Both proposals were due to have been announced simultaneously last week, but the disagreements within the commission led to a postponement.
Carmakers and fuel manufacturers have reported that both proposals would increase costs for consumers.
Both measures would also have to be approved by the European parliament and by member states before they would become law.
The proposed amendment to the fuel quality directive would oblige manufacturers to ensure an annual 1% cut in the emissions produced during the production and use of fuel between 2011 and 2020.
The commission says that would result in an overall saving of 500 million tonnes of CO2 by 2020, and 100 million tonnes thereafter.
A new class of fuel, labelled "high biofuel content", would be introduced, with a biofuel content of up to 10%, instead of the current maximum of 5%.
"This is one of the most important measures in the series of new initiatives the commission needs to take to step up the fight against global climate change," Mr Dimas said in a statement.
"It is a concrete test of our political commitment to leadership on climate policy and our capacity to translate political priorities into concrete measures."
Jos Dings, director of the pressure group Transport and Environment, said the EU had promoted biofuels "regardless of whether or not they are good or bad for the environment".
"If it's designed right this commitment to reducing carbon emissions will ensure that only the cleanest biofuels are promoted and the production process of fossil fuels is cleaned up," he said.
"That is a very good approach and we welcome it."