Fiat Automobile SpA’s 2-cyl. TwinAir gasoline engine spearheads the auto maker’s plan to remain Europe’s lowest emitter of carbon dioxide, on a fleetwide basis.

The 0.9L engine will be made in variants ranging from 65 hp to 105 hp, and a version will run on compressed-natural gas. In addition, Fiat says its smaller size and mass will make it the choice for a coming range of Fiat hybrid-electric vehicles in Europe.

Fiat was the last auto maker to use a 2-cyl., 4-stroke engine, in the 500 city car before 1975. That one was air-cooled, simple and designed to be inexpensive.

“The first one was Spartan,” Fiat Powertrain Technologies Vice President Paolo Martinelli told the Italian newspaper La Stampa.

“Today, we have a gem of efficiency, which will create an entire family under the banner of environmental sustainability. Using two cylinders of about 0.4L each reduces the moving elements that create friction. The weight is lower and the turbocharger recovers energy from the exhaust gases.”

An 85-hp version was displayed in the new Fiat 500 at the Geneva auto show in March, which the auto maker said would go on sale in September. The engine first came to light last September at the Frankfurt auto show in a concept Panda Aria.

With a manual transmission, the 500 is rated at 98 g/km of emitted CO2. However, engineers are tuning the engine to reduce that to 95 g/km with a robotized manual transmission, says Fiat France spokesman Christophe Useo. At 95 g/km, the car will be eligible for a E1,000 ($1,352) bonus in France.

Fiat says the TwinAir will outperform two 4-cyl. engines now used in the 500. The 69-hp 1.2L 8-valve engine is rated at 115 g/km, and the 100-hp 1.4L 16-valve engine is rated at 135 g/km.

As Euro 5 and Euro 6 exhaust rules tighten, the TwinAir will replace not only inferior gasoline engines, but also some diesels, Useo says.

Diesel engines likely will become much more expensive when they must further reduce oxides of nitrogen emissions under Euro 6.

The engine will be used in other Fiat models, including the rear-engine 3-seat Topolino city car going into production this year. The engine will be produced at Fiat’s Turin plant, but the company has not released volume projections.

The TwinAir uses Fiat’s MultiAir electro-hydraulic intake valve control, and it requires a significant countershaft to reduce vibration. The 65-hp version will be naturally aspirated, and turbocharging will produce the 85-hp and 105-hp versions.

The engine is 23% shorter compared with a 4-cyl. and 10% lighter. Fiat says the packaging flexibility should present no problems in having both gasoline and CNG injectors in the induction system to create bi-fuel engines.

Fiat has not yet specified performance of the CNG versions. CNG is a major segment in Italy, and a growing one in France, because the fuel is cheaper and government incentives for the low-pollution fuel are significant.

Fiat Auto last year led the European industry with the lowest CO2 emissions. First-half fleet sales averaged 129.1 g/km, according to the JATO consulting organization. Fiat sold 65,000 CNG vehicles in the period, rated at 115 g/km.

While Fiat CEO Sergio Marchionne has danced around the question of hybrids, the auto maker has said the TwinAir is designed to be compatible with hybridization.

Fiat will use the extra packaging space from the smaller engine to install a motor-generator between the engine and gearbox that will add torque while capturing braking energy to help power the hybrids.

Marchionne has said Fiat won’t talk about its plans until its April 21 announcement of a 5-year strategy. But a local politician tells Italian media Fiat will make hybrid versions of the successors to the Idea and Multipla minivans, slated for production in the Mirafiori plant in Turin in late 2011.

Fiat has indicated the electric Fiat 500 planned for North America will not come to Europe.