"I think this is the biggest challenge we have," Piebalgs said. "Transport consumes a lot of oil. Even if we can't establish a legal framework for it, energy efficiency should really be a Europe-wide policy."

The international tension over Iran's nuclear ambitions, unrest in Nigeria and a row between Russia and the Ukraine over gas supplies this year have increased concern among Europe's leaders about future dependency on potentially unreliable energy suppliers. EU leaders will discuss the energy policy in March.

Piebalgs said in the long term Russia would be a reliable supplier to Europe, and that the Russia-Ukraine gas row and the Kremlin-driven demise of producer YUKOS would not dissuade European countries from investing there in the future.

"Russia is interested in being a strong player in this market, and to be a strong player you need to be reliable," he said. "Russia has always been reliable in the past and has always delivered gas on contract terms."

Piebalgs said the EU would need to encourage car manufacturers to develop and adopt new technologies to increase energy efficiency. Biofuels would help a little, but oil would continue to dominate the transport sector, he said.

The common energy policy would also need to tackle how to improve relations with external energy suppliers, diversifying supply and reforming EU internal energy markets, he said.

INVESTMENTS

Policy would need to look at using investment banks, the European Development and Reconstruction Bank and financial instruments to increase European investment in the energy industries of suppliers such as Norway, Russia and North African countries.

Within Europe, investment was needed on gas interconnectors in Belgium to improve supply availability to the UK and France, he said.

Another interconnector was necessary between Poland and Lithuania, he said.

New terminals to import liquefied natural gas (LNG) would help diversify supply, Piebalgs said, adding that Germany would probably need more LNG terminals.

Polish Prime Minister Kazimierz Marcinkiewicz said on Thursday that Poland was looking at building a new LNG terminal.

Piebalgs pointed to the Nabucco pipeline project that aims to pump gas from Turkey to Austria as important for gas supply diversification. The 4.5 billion euros project plans to pump 25 billion cubic metres (bcm) per year (2.4 billion cubic feet per day).

Nabucco could bring gas supplies from Iran, Azerbaijan, Kazakhstan, Turkmenistan, Egypt and Syria as well as Turkey.

The policy should also look at harmonising energy regulations in EU countries, he said.

Momentum is growing within Europe for the common energy policy, although members will be wary of attempts to boost the EU's executive powers.