The EC plans to introduce a legally binding target for average CO2 emissions of 130 grammes per kilometre, ten grammes more than the target set in 1996 of 120g/km.
New cars currently emit about 160g/km.
The impact of the weakened target will be 100 million tonnes of additional CO2 emissions over the period 2012-2020, equivalent to twice the annual emissions of Sweden.
The proposal does mean, however, that for the first time, carmakers will legally bound to improve fuel efficiency.
The announcement follows the failure by the car industry to cut carbon dioxide emissions from new cars at the rate needed to meet the voluntary target agreed in 1998. The new figure is a compromise with commissioners divded on how much effort carmakers should make to reduce emissions.
Verheugen were divided over how much an effort should come from car makers.
Environment Commissioner Stavros Dimas sought a limit of 120 grammes for car makers while Industry Commissioner Guenter Verheugen wanted measures to be shared with tyre, equipment and fuel makers, easing the burden on the automobile industry, which he says employs 12 million people in Europe.
The existing target for new cars set by the European Union in 1996 was for the average new car to emit 120 grammes of CO2 per kilometre by 2005, equivalent to 4.5 (diesel) or 5.0 (petrol) litres of fuel per 100km.
"130 grammes is very ambitious but it can be done," Verheugen said. "We have to demonstrate that the EU is to combine three objectives: to protect our jobs, to achieve the highest environmental standards and to boost innovation."
The European car industry opposes the new limit.
"Putting the burden of reducing CO2 emissions mainly on the shoulders of the car industry means choosing the most expensive and least cost-effective strategy for society," ACEA, the European car industry association said in a statement. "It will lead to a loss of jobs and a relocation of production outside Europe."