The problem is that with taxation so tightly tied to CO2, manufacturers are forced to aim for the lowest possible numbers according to widely-discredited "standardized" tests. That's what leads to things like the VW emissions scandal. If the car makers could just optimize their engines for best real-world economy, as they used to do, they could keep total CO2 and NOx low. Instead they have to target the artificial conditions of the test because 100g CO2 instead of 99g could put them in a higher tax category, so they aim for that 99g even when it means much higher CO2 and NOx in conditions not covered by the test.