Tata Motors may face penalty or premium for excess emissions from high-end Jaguar and

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Land Rover vehicles when a stringent environment law is enforced in Europe in 2012.

In an initiative aimed at reducing CO2 emissions from new passenger cars by 19 per cent, the European Commission had adopted a proposal for legislation in December 2007.

The manufacturers can, however, make cars with emissions above the permitted limits, but have to balance by vehicles which emit less than the set standards.

"While the Jaguar-Land Rover could have offset higher CO2 emission of its fleet by balancing it by Ford's fleet of light low emissions cars, the same is not possible under Tata Motors as its does not sell cars in Europe," a KPMG-CII study on Climate Change has said.

The proposed legislation to come in force in 2012 sets an emission limit for new vehicles according to mass of an automobile. The emission standards are set, "in such a way that heavier cars have to improve more than lighter cars," the report said.

The new European law would suit the manufacturers which have a good mix of high and low emission cars. Tata Motors had acquired the luxury Jaguar and Land Rover brands in March this year.

While Tatas had said they have always been aware of these issues and are formulating appropriate response, "This is one example how regulations in developed countries may fundamentally impact the operation of Indian businesses," the KPMG-CII study said.

Under the proposed legislation, a premium of 20 Euros per gm per km has been proposed in the first year (2012), rising to 95 Euros by 2015.