Despite the sustained increase in the number of vehicles on roads and overall distance travelled, improvements in conventional vehicle and fuel technologies over the past ten years have led to considerable reductions in emissions of local pollutants. These reductions have contributed to improvements in air quality in urban areas in most OECD countries. At the same time, CO2 emissions are continuing to increase by nearly 2% per year. What is the potential of conventional technologies (petrol and diesel) to further reduce local pollutant levels? Is it possible to reduce vehicle fuel consumption, and thereby help prevent a continuous increase in CO2 emissions? What can be expected from the use of alternative fuels (such as LPG, CNG and biofuels)? Do alternative technologies (such as full electric vehicles or hybrid vehicles) have the potential to reduce both local pollutants and global emissions, and if so, are they able to compete in the marketplace with conventional technologies? In the longer term, what can be expected from the development of fuel cell vehicles? This report provides answers to these questions, identifies policy options and makes recommendations on actions that would promote the purchase and use of the most environmentally friendly vehicles.