A Liberal Democratic Party panel in charge of energy policy recommended in a report released Wednesday the introduction of an environmental tax on gasoline and other fossil fuels to cut carbon dioxide emissions.

It is the first time the probusiness LDP has acknowledged the necessity of introducing a carbon tax, a measure likely to meet strong resistance from the nation's business community.

The decision by the LDP energy panel is likely to give the issue priority when the government reviews the taxation system for fiscal 2001 at the end of this year.

While the electric power and steel industries are against a new environmental tax, the idea is favored by the government's Tax Commission and the Environment Agency.

The LDP energy policy subcommittee, headed by former Labor Minister Akira Mari, will compile a final report by the end of this year.

Under the proposed scheme, revenues from an environment tax would be earmarked to address environmental issues such as the promotion of solar and other new sources of environment friendly energy.

Pointing to growing concern over environmental problems such as global warming, the interim report calls for overhauling the current energy-related tax system and introducing a system that would impose tax on the amount of carbon dioxide emitted.

The LDP panel has yet to set a rate for the proposed tax, but sources said that the committee hopes to hold down the tax bite through a review of the current gasoline tax.

Under the current system, the gasoline tax is intended exclusively to pay for the maintenance and development of Japan's road system and a review of that system could put the panel at odds with the LDP construction industry caucus.

If the LDP energy panel gets its way, the proposed tax would provide government funding to help develop cost-effective solar and other environment friendly energies so that they can compete with fossil fuels and nuclear power.

Japan's power and steel industries are wary of new taxation on fossil fuels, arguing that the extra tax burden could brunt their competitive edge in the world market.

The Tax Commission is an advisory panel to the prime minister.

It issued in June an interim report on the reform of the nation's tax system and proposed that the government look into a green tax.

Proponents of an environmental tax on fossil fuels hope the taxation would help slow down global warming through a reduction in carbon dioxide emissions.

Industrialized European countries such as Sweden, Denmark, Norway and the Netherlands have already introduced the so-called carbon dioxide tax. Italy and Britain are also expected to follow suit.