Of course the govt can limit vehicle sizes, and already do, in both width and weight, at least, to fit the roads.

Within those limits, I think they should push for more environmentally friendly vehicles through taxes.

But not just fuel taxes, which might not give the desired incentive 'curve', and in any case still penalize even the most economical vehicles.

But directly; per kerb weight, per mpg, per co2/mile, etc, etc.