Californian regulators are proposing an innovative pay-as-you drive insurance scheme aimed at reducing customers' travel mileages.

Insurance packages are based on average mileages, and do not deter drivers for using their cars because they pay a flat rate regardless of how far they drive.

However, California Insurance Commissioner Steve Poizner said that the new scheme would help both the environment and motorists by ensuring they only pay for insurance when they drive. "I am thrilled to pave the way for California drivers to obtain insurance that is more environmentally friendly and more accurately reflects driving habits," he said.

Under the scheme, Poizner said mileage readings would be taken from odometers or other specially installed devices, rather than potentially privacy-infringing GPS systems.

Green group the Environmental Defense Fund estimated that if 30 per cent of the state's drivers opt for the voluntary pay-as-you-drive coverage, the state could reduce carbon emissions by 55 million tonnes between 2009 and 2020.

In related news, the state is also close to adopting a new legislative package that would help cut traffic emissions by promoting new housing developments that are close to job sites.

The measure would tie billions of dollars in state and federal transportation subsidies to compliance with efforts to slow the inexorable increase in urban sprawl.

It focuses on new land development and the importance of balancing commercial and residential properties in an area, as well as providing guidelines to where roads are built.

The proposals were approved by the State Assembly on Monday and now await final approval by the Senate.