The EU's executive Commission has proposed cutting CO2 from cars by 18 percent to 130 grams per km by 2012 as part of an ambitious plan to lead the world in reining in climate change, and many nations are expected to follow its strategy.

But auto making nations have successfully pressed for a softening of the plan, led by Germany, which specialises in powerful, luxury vehicles like Mercedes and BMW, which emit the most greenhouse gases.

The big car makers have argued that a rush to legislate puts jobs and export earnings at risk.

But the environment panel of the European Parliament, which shares the duty of drafting legislation with EU member states, last Thursday rejected the latest changes to the draft laws, saying they were too soft on the auto industry.

The vote could yet prove to be parliament's final say before heading into negotiations on the final laws with member states.

JOB CREATION

"The car lobby asked for too much, and so they got nothing," said Greenpeace campaigner Franziska Achterberg.

In addition, car parts suppliers, who provide 60-80 percent of any cars value, are increasingly getting across their message that the technology is ready now and they welcome swift action.

"This does not endanger jobs -- it will create jobs and benefit economies," said auto expert Paul Nieuwenhuis at Cardiff Business School. "Manufacturers' fight for a delay to 2015 is a difficult one to justify as they already bought from the suppliers a lot of the technology they need to meet the goal."

Nieuwenhuis said the industry might be suffering a backlash due to the perception it has already been too successful in making its voice heard. "If lobbying is too intense it can become counter productive," he said.

That view was shared by car manufacturers group ACEA, which also said realism had been thrown out in favour of idealism.

"It is a pity it wasn't about the issues and arguments any more, as if the interests of industry weren't also the same as the interests of society," said ACEA's Ivan Hodac.

"We have to get away from the emotion of the debate and find a realistic framework that helps both the environment and the industry," he added.

ECO-INNOVATION

Parliament's representatives will now seek to agree binding laws with the member states, but any laws will then have to be approved by the whole parliament, particularly its two biggest groups -- the conservatives and socialists. Doing that means winning over their greenest members.

Lawmakers say the level of fines for non-compliance is the least important issue as carmakers are expected to invest the money in hitting the targets rather than waste it by missing.

Instead, the debate will now focus on the speed at which curbs are phased in and on ensuring that rules aimed at promoting technological advances or "eco-innovations" do not become loopholes allowing industry inaction.

"I think council (member states) will return with something that is more strict on eco-innovations and has a phase-in that is more ambitious," said German conservative Peter Liese.

Dutch socialist Dorette Corbey said the EU had been discussing curbs since the 1990s and it was time to act.

"The most important thing is to get rid of the phase-in and keep to the Commission's date of 2012," she said. "I don't like eco-innovations, but I can live with them, and I could live with a compromise on the penalties."

(Editing by James Jukwey)