Ambitious new legislation to force oil companies to blend expensive biofuel into petrol is expected to be presented today, sending a message that carmakers will not take all the pain of reducing carbon dioxide emissions.

In the face of fierce lobbying from Ms Merkel and the car sector, Stavros Dimas, the EU environment commissioner, has scaled back his most ambitious plans to cut car emissions.

Mr Dimas wanted the car industry to introduce new technology and cleaner engines to meet a CO2 emissions target of 120g per km by 2012; the rules would apply to any company selling cars in the EU.

But Mr Dimas's allies said last night his bottom line was now a target of 130g/km for the car industry. Senior European Commission officials expect a final outcome to be close to that figure, which would still be lower than Japan's 138g/km target by 2015.

However, the officials insist the overall target of 120g/km should remain, and that other methods - especially the use of greener fuels - should be used to make up the shortfall.

These also include fitting cars with indicators to tell drivers when they need to inflate their tyres or change gear.

An integral part will be the fuel quality directive, to be adopted by the Commission today, which has angered the petroleum industry, which believes Brussels has bowed to Ms Merkel and the German car industry.

It will require petrol to comprise at least 5 per cent ethanol from 2011, reaching 10 per cent in 2020. Oil companies must also curb their carbon emissions in extracting and transporting fuel.

The move is estimated to save 500m tonnes of carbon by 2020, almost three times that expected from including air transport in the EU's emissions trading scheme.

However, the car industry continues to battle for more leeway. "Even a 130g limit would be very difficult," said one representative.

The industry looks almost certain to fail to fulfil its 1999 voluntary agreement to cut emissions to 140g/km by 2008.

Ms Merkel signalled her determination to defend -Germany's car industry when she told a Berlin business conference she "would certainly block" any binding regulation that did not -differentiate between car sizes.

Ms Merkel said it was a "regrettable fact" that the European car industry was not fulfilling the voluntary agreement to cut emissions, but said a "general regulation for all [car] sizes" would be wrong.

The European Commission says the emissions limits were always intended tobe an average across the -sector