The latest Honda Insight has only been with us three years, but that short period has involved some radical change of the hybrid market, with plug-in versions, new manufacturers and wider model ranges joining the fray.

So while Honda made this more conventional-looking in its second generation, rather like its main rival the Prius, the added practicality and size has cost it on fuel economy. Now a vital asset in Europe, even the latest hybrids are only just coming close to the original Insight’s 83mpg.

Europe is a tough market for hybrids, and with more choice and even C-segment diesels coming in under 100g/km Honda’s downward push on CO2 couldn’t come soon enough. The 2012 version, marked out by subtly updated styling, emits 99g/km in this mid-spec version. Not enough to be best in class, but that 2g/km drop offers much stronger running costs.

This is a different drivetrain to the Prius, which can deactivate its petrol engine and drive just on the electric motor. Honda’s Integrated Motor Assist (IMA) system uses a motor to assist the petrol engine, and can slow the latter to low revs when it’s not under heavy load, using the electric motor for traction. But the engine only shuts down when the car is stopped in traffic.

Its frugality comes from a gentle encouragement of calmer driving. ECON mode, activated using a green button on the dashboard, softens all but full throttle inputs to save fuel, but still allows relatively easy progress. Even heavy-footed drivers can see 50-55mpg on a combined cycle, and its aerodynamic body makes the Insight blissfully quiet at high speed.

But competition is tough. The Insight undercuts the Prius on price, but it’s about level with the more efficient Auris Hybrid, and Toyota can push existing customers into the Lexus CT 200h when they climb the company car ladder. Honda, too, has a rival. The Civic will get a 1.6-litre diesel next year, lower in CO2 and likely to be cheaper than the Insight.

Ultimately Honda doesn’t tend to make glaring errors with its products, and there’s nothing really wrong with the Insight. But with the rest of the pack rapidly cutting CO2 emissions, generation three really needs to be safely under 90g/km to get European drivers on board.

Verdict:

The Insight offers Prius-esque motoring for a lower entry price, but Toyota can claw back costs on lower CO2, which is enough to put a BiK band between the two cars when the banding changes next April. But this is a good cost-conscious car, easily capable of high efficiency without feeling strained, though ultimately likely to lose out to the more European-targeted 1.6 diesel Civic.

Spec:

Segment: Lower medium

Type: Petrol-electric hybrid

Price: £20,335

Fuel: 65.7mpg

Electric range: 0 miles

CO2 emissions (tailpipe): 99g/km

Charging port: N/A