EU plans to harmonise a fuel tax could cost the UK £2bn a year and damage the environment, say peers.
The peers say tax plans would encourage freight onto the roads
A report by the House of Lords EU committee tax says that UK duty on commercial diesel would have to be slashed by more than 50% if plans to harmonise the tax come into play.
The European Commission proposes to standardise the tax by 2010 claiming that the move would generate extra revenue for governments of member states.
But inquiry chairman Lord Geddes argued that in fact the Treasury would lose out to the tune of £2bn.
The UK Government opposes the proposals, which would could only become European law if all 15 EU states agreed.
Lord Geddes said: "The commission's arguments on harmonisation of fuel taxes are confused.
"While cuts in tax on diesel might delight lorry drivers, the potential economic and environmental consequences of this proposal make it unacceptable.
"The commission is wrong to say its proposal would generate extra revenue for governments - the UK Treasury would lose £2bn a year."
On the roads?
Lord Geddes also argued that cheaper fuel would encourage businesses moving goods across the EU to switch from rail to road and that it ran contrary to the idea of polluters paying.
"The commission's claim that the proposal would have a positive effect on the environment is equally unfounded.
"Cheap fuel would switch freight from rail to road, feeding our growing reliance on road transport, choking our environment with greenhouse gases and creating further gridlock on our roads.
Existing differences in rates of fuel taxation do not distort competition in the haulage market
"The proposal goes against the EU's 'polluter pays' principle and does nothing to make transport users face up to the real costs of transport - for the EU as a whole it would move taxation in the opposite direction because it would reduce the average level of fuel duty."
Lord Geddes rejected suggestions that the commission's proposal would eliminate distortions to competition on the grounds that at present different member states levy different rates of duty.
"Because of compensating differences in other taxes and costs, the existing differences in rates of fuel taxation do not distort competition in the haulage market," he said.
A European Union spokesman said the Treasury was losing money already by lorries going abroad with almost empty fuel tanks and returning fully laden.
He said there would also be transitional arrangements to offset the financial obstacles some nations faced.
The spokesman suggested the change could bring environmental benefits through more efficient use of commercial diesel.
He said the report seemed to focus on the effects of a potential move from rail freight to rail travel.