The tool, the New Approach to Appraisal (NATA), assesses a scheme's "value for money, deliverability and strategic fit" and is slammed as outdated in the light of the government's new commitment to cutting CO2 emissions.
The criticism comes in a report published by Campaign for Better Transport and the Green Alliance.
"In practice, NATA often discriminates against the very behaviours the government is trying to encourage," says its Getting Transport Right, report.
It also claims that using NATA, fuel revenues generated by extra traffic add to the benefits of road building projects.
Journeys on public transport reduce fuel use and so score less.
"Public transport, cycling and walking schemes often fare poorly for this reason and so do schemes that make driving more efficient," the report continues.
It also says that NATA should no longer put a monetary value on things like a person's life, injury or endangered species when considering economic benefits.
A Department for Transport (DfT) said it was considering some changes. A spokeswoman said: "We are consulting on whether any changes to our appraisal process is needed."