The review could see radical changes to duty levels for popular fuels such as liquefied petroleum gas (LPG), which is enjoying booming sales because a 40p per litre tax break means it is currently around half the price of diesel.
However, the Government only guaranteed its support for duty cuts until next year and it will consult stakeholders, including fleets, leasing companies and fuel providers, on the future of its financial incentives and other policy measures for road fuel gas over the next few months.
The Government's findings will be revealed in this year's pre-Budget report, which should be announced in November. Leading lobby groups are already locking horns in the battle to win Government support for their views.
Some are demanding duty on LPG is increased to the same level as other 'green' fuels, such as biodiesel. They claim LPG no longer offers any environmental benefits compared to the cleanest petrol and diesel engines.
Opposition groups believe any increase could kill off the drive towards environmentally-friendly transport and throw fleets' current plans into chaos.
This week, Julie Foley, research fellow at the influential Institute for Public Policy Research, said: 'The environmental benefits of LPG are now so marginal that its high duty incentive is no longer justified.
'Part of the problem is that differentials have been added on an ad-hoc basis. The Government has a strategy to 2004 and then the whole thing is in complete disarray. We want a system of supporting alternative fuels according to their carbon content, because that has a major long-term effect on the environment.'
Under this system, the 40p per litre duty discount currently offered to LPG could be slashed to less than 20p.
Tom Fidell, director general of the LPG Association, which is preparing to mark the sale of the 100,000th LPG vehicle in June, has already met with the Department for Transport and will hold talks with Transport Minister David Jamieson in the next fortnight.
He said: 'We have a good case to put forward and have been testing emissions of LPG vehicles against petrol and diesel rivals for a report we will release this year. We will be presenting that information to the Government.'
The association knows there is a huge amount at stake, as fleets throughout the country have invested millions of pounds in vehicles. Residual values will collapse if the Government removes LPG duty incentives.
Fidell added: 'We are looking for fleets and stakeholders to show their support for LPG during this consultation.'
A spokesman for Transport Energy, which runs the PowerShift grant programme offering millions of pounds a year to fleets to purchase alternative fuel vehicles or carry out conversions, said: 'LPG offers a 10% to 15% reduction in CO2 emissions compared to petrol models, while oxides of nitrogen and particulates – which can cause breathing problems – are almost eliminated.
'We believe there has to be some form of fiscal incentive because of these benefits. Although we believe that hybrid models are the future, there are still only two for sale in the UK.'