This week, the European Commission has set a target to lower the amount of CO2 emissions from cars and vans by the year 2020.

In an attempt to cut fuel bills and reduce global warming, these targets are bound to 95 grams per kilometre for cars, and 147g/km for vans. The average car currently on the market produces about 140g/km, meaning that car manufacturers have only eight years in which to look at alternative solutions.

The target set for 2015 – bound by EU legislation – is 130g/km for cars, something which the recent rise of the fuel-efficient cars such as hybrids could be on the way to achieving. Widespread adoption of these types of cars could prove difficult because of their price, and their place at the fringe of the car world. The uptake would need to be a lot faster on hybrids and electric cars in order to lower harmful emissions to meet the much tougher target set for 2020.

However, car manufacturers are currently feeling the squeeze of a large-scale economic crisis and the threat of foreign competition to be able to focus on the redevelopments – only the Volkswagen Group didn’t lose money in 2011. A statement this week from ACEA, the European Automobile Manufacturers' Association, says that “regulation, rigid by nature, too often adds undue complexity and costs, or limits flexibility.” Given more time to meet the EU targets, it’s expected that it could be a priority, but with the European car market in trouble it doesn’t appear to be a priority.

Greg Archer, of lobbying group Transport & Environment, thinks that long-term car efficiency will benefit both driver and manufacturer, with the lower costs of production passed onto the motorists to save money on buying. "Car prices came down in real terms and consumers have benefited considerably from improved fuel efficiency. There is no doubt that legislation provides a massive boost to innovation, and costs fall over time."

It’s this legislation, insists Archer, which keeps Europe in the hunt to produce the best cars. "There is a real danger that Europe is going to lose its competitive edge in low-carbon vehicles if suppliers don't get the investment certainty needed to develop advanced technologies.”

It’s a financial Catch 22 for Europe’s car manufacturers – do they risk money on the new developments, or face potentially heavy fines from the EU if they stick to what they know?