High oil prices are a headache for governments. Ministers are acutely aware that the price at the petrol pump is one of the most emotive issues for voters – they remember keenly the humiliation of the Labour government in 2000 when high prices sparked nationwide protests that threatened to paralyse the economy and forced an embarrassing government climbdown. Oil price rises are also one of the key drivers of high inflation, which is already prompting the Bank of England to consider raising interest rates despite the fragile state of the economic recovery.

Rising inflation and the prospect of a repeat of the 2000 fiasco are causing deep unease in the coalition. As they did in 2000, representatives of the haulage industry, vehicle manufacturers and motoring organisations have called for tax breaks to stabilise fuel prices in order to bring down pump prices to the levels of December 2009. The campaign has some high-profile backers including Boris Johnson, mayor of London. The chancellor, George Osborne, has hinted he may look favourably on the proposals.

Chris Huhne, the Liberal Democrat climate change secretary, is standing firm against these calls, arguing that an oil price of more than $100 a barrel means green policies – such as subsidies to renewable energy – are cheaper for the consumer, and that the key to combating higher prices is to reduce the UK's dependence on fossil fuels.

Ceding to the calls for a fuel price stabiliser would cost £6bn in lost taxation, the Green Alliance thinktank has calculated. Taxpayers would effectively have to subsidise motorists. "It's fiscally irresponsible to think the government can stop the price of fuel from going up," said Chris Hewett, economist for the Green Alliance. "Cutting fuel duty means other taxes have to go up or further spending cuts need to be made."

However much ministers may wish it, the row over fuel prices is unlikely to go away. The UK is more dependent than ever on oil imports, which have risen sharply since 2000 when production from the North Sea's oil and gas fields went into steep decline.

The key to weaning the UK away from foreign oil, Huhne says, is to reduce the need for petrol. This can be done with a mixture of policies including tax rebates and cash incentives for electric cars, more car pooling services and improvements to public transport.

But green campaigners believe the government's policies on cars do not stack up. "Successive governments have failed on transport and this government is not doing any better," said Mike Childs, head of climate change at the environmental pressure group Friends of the Earth.

In January the government launched a scheme to subsidise electric car purchases by up to £5,000 each. The subsidy will be reviewed in 2012, which means that only the first year of funding – £43m or enough for about 8,600 cars – is guaranteed.

This is too little to have much effect, according to Shai Agassi, founder of the electric vehicle infrastructure company Better Place. "Investors want to see clarity on the regulatory framework that would indicate that the government would support this for a long period of time, not just for a small number of cars or a short period of time," he said.

While the cost of motoring is increasing, the cost of taking public transport is rising even faster. Last year's comprehensive spending review will mean that rail fares go up by 25% over the next four years. Bus fares are also on the increase and services are being cut. Peter Head, director at the engineering company Arup, has estimated that about 1% of GDP a year should be invested in public transport but the UK falls below this.

Meanwhile the UK's policies on car taxation are less effective than those of other European countries, according to Hewett. Germany, France, Denmark, the Netherlands, Ireland and Sweden all have more effective policies, offering cash incentives or much more generous tax terms than the UK. Hewett said: "The evidence suggests that in countries where such tax differentials have been in place for some time like Denmark and the Netherlands, the overall fuel efficiency of the vehicle fleet is better than in the UK, and has improved more quickly over time."

In Spain the government is taking the drastic step of cutting speed limits on motorways and cutting train fares, as the unrest in Libya threatens the country's oil supplies.

By contrast, in the UK the government has failed to put in place the policies that are needed to insulate Britain against high oil prices and move to a low-carbon economy, and the effects will be felt in higher costs and higher greenhouse gas emissions, says Childs, of Friends of the Earth. "At some point the imperatives of an ever higher oil price and of climate change will mean that the government will need to get to grips with greening transport," he said. "They should do it now."