The energy tax, which needs the agreement of all 15 EU states, would raise existing minimum tax levels for oil products and introduce EU-wide minimums for coal, gas and electricity.

EU leaders agreed in principle to the bill at a summit in Barcelona, Spain last year, but spats over exemptions for truckers, households and energy intensive industries held up full agreement on the proposal which was tabled in 1997.

Hopes for a deal increased in December when EU officials drafted a compromise that would have let France and Italy phase out tax breaks on diesel gradually over the course of two years.

But EU diplomats said on Thursday that Italy was insisting its hauliers should benefit fully from tax breaks on diesel until the end of 2004.

"Italy has raised some objections," a EU diplomat told Reuters. "But the Greek EU presidency is working to bridge these differences."

The issue will now be put to the finance ministers for a decision when they meet in Brussels on Tuesday.

ALPINE TRANSIT

At a meeting of high-level EU representatives on Wednesday, Italy insisted that the taxation debate had to take account of road transport's essential role in Italian exports.

"It's a question of free movement of goods. Italy is in a difficult situation as it is surrounded by mountain chains," an Italian diplomat said.

"The tax breaks are just a way to compensate Italian truck drivers for the difficulties they face when they travel across the Alps," he said.

Italy has said its truckers have been hurt by a three-year closure of the Mont Blanc tunnel between France and Italy following an accident.

They have also faced restrictions imposed on truck transit by neighbouring Switzerland, not a EU member, and by Austria.

Environmentalists see the energy tax as essential to spur companies and individuals to use energy frugally and reduce pollution caused by fossil fuels as well as nuclear power.