Fellow Olympic gold medallist Victoria Pendleton admitted in June that she was unsure about defending her Commonwealth Games title because of similar concerns over scheduling complications.
I could turn up at the Commonwealth Games in October, but it'd hamper my preparation for the European Championships
The UCI also announced there will be one competitor - one rider or one team - per nation, per event in London, something which an irate Pendleton compared to Jamaica choosing between Usain Bolt and Asafa Powell for their athletics team.
Edinburgh-born Hoy had been relishing the opportunity to represent Scotland and recently said: "It is the only chance that we have got to pull on a Scottish jersey and I think that is what makes the Commonwealth Games such a great event.
"Don't get me wrong, I am proud to compete for Britain but I am very proud to compete for Scotland."
But Hoy, who has won a gold medal at each of the last two Commonwealth Games, will now concentrate instead on the European Championships, with the event taking on extra importance due to ICU's new Olympic qualifying criteria.
"I could turn up at the Commonwealth Games in October, but it'd hamper my preparation for the European Championships. And I wouldn't be at 100%," said Hoy.
"The standard at the Commonwealth Games is so high that 95% wouldn't be good enough, and it would be disrespectful to the event and the Scottish team."
British Cycling performance director Dave Brailsford warned that more elite cyclists will have to decide between the two events.
"This new European Championship will affect everybody with Olympic ambitions," said Brailsford.
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