Australia will not introduce a carbon-based tax for light vehicles despite the Department for Infrastructure putting it forward as a potential solution to emissions problems.

The Turnbull Government has shut down media reports it will introduce a new vehicle pricing scheme that penalises buyers who choose thirsty cars.  

Responding to a front page story in Sydney's Daily Telegraph, Energy Minister Josh Frydenberg told the ABC "there is as much chance of a carbon tax on cars as Elvis making a comeback".

"There has been consultation going back as far as October 2015 on fuel efficiency standards and the government has made no decision on the policy to go forward in this particular way.

"People are getting ahead of themselves here."

The Department of Infrastructure and Regional Development (DIRD) has openly canvassed the possibility of phasing in emissions-based taxes as a replacement for existing revenue structures such as the luxury car tax.

DIRD reportedly asked car companies for feedback on a proposed structure that could increase the price of popular cars by thousands of dollars.

Prime Minister Malcolm Turnbull told journalists in London that "certainly no decisions have been made in that regard at all".

Research papers published by DIRD have suggested "improvements in vehicle efficiency through changes to the tax treatment of vehicles and road user charges", including "regulatory pressure to reduce fuel consumption and CO2 emissions".

A draft regulation impact statement published in December 2016 suggested that "the Australian Government would legislate targets for vehicle efficiency", following the likes of the UK and Europe with a tax structure linked to a vehicle's fuel economy.

Frydenberg told the ABC "the only thing that the government is interested in is 'how do we reduce the fuel prices for families on their vehicles'," which poses an interesting problem for regulators.

The car industry is pushing for better fuel standards in Australia, with leaders such as Toyota saying "improvements to Australia's fuel quality is considered paramount" if Australia is to continue receiving efficient and modern cars that meet strict standards in place overseas.

But fuel providers such as Caltex say doing so would be prohibitively expensive, increasing the cost of fuel.