CAR manufacturers are facing financial penalties for selling fuel-hungry vehicles after a report showing that greenhouse gas emissions from new cars have risen for the first time.

Motorists are shunning smaller, environmentally friendly models and instead choosing cars with extra interior space and more gadgets. Both factors add to weight and reduce fuel efficiency.

The average private car sold last year produced 174.2 grammes of carbon dioxide per kilometre, up from 173.6g/km in 2003 and the first increase on record, according to the Society of Motor Manufacturers and Traders (SMMT).

The industry has privately conceded that it will fail to hit its voluntary target of reducing emissions from new cars to an average of 140g/km by 2008.

A separate Government target, for 10 per cent of vehicles sold in 2012 to emit less than 100g/km, is also now in doubt.

Last year only 481 of the 2.6 million cars sold, or 0.02 per cent, emitted less than 100g/km. By contrast, the number of four-wheel drive vehicles sold rose to a record high of 180,000.

The Government is becoming increasingly frustrated with the industry’s lack of progress on emissions and is exploring a range of measures to encourage it to sell greener vehicles.

The Energy Saving Trust (EST), the Government-funded body that promotes energy efficiency, is proposing that each manufacturer be given an individual target for reducing average emissions per vehicle.

Those that failed to meet the required level would have to buy certificates to pollute from manufacturers that had ex- ceeded their targets.

The idea is a version of the emissions trading scheme already covering 12,000 large industrial plants in the European Union.

Manufacturers would be judged on the performance of their entire range of models. The trust believes that many manufactuers are highlighting their greenest models to conceal their lack of progress in reducing overall emissions.

Toyota widely advertises the Prius, a petrol-electric hybrid that produces only 104g/km, but the Japanese company sold only 1,600 Priuses last year compared with more than 20,000 Land Cruisers and RAV4s, four-wheel drive cars that produce up to 387g/km.

Richard Tarboton, the EST’s head of transport, said: “Manufacturers are not doing enough to promote greener cars. They make more profit from selling bigger cars which cause more pollution.”

An SMMT spokesman said it was wrong to blame manufactuers for the choices made by consumers. He said cars had become heavier because of improvements to make them more forgiving in the event of a collision.

“We are limited by what the market will buy, but the environment is moving up the agenda for car buyers,” he said. “A few years ago it barely registered.”

The industry promised to introduce colour coded labels in all car showrooms from September 1 this year to highlight each vehicle’s carbon dioxide emissions, with dark green for the cleanest and red for the most polluting.

A recent survey of 119 showrooms, however, showed that only half were displaying the correct label on all vehicles. More than a quarter did not display any labels.