German Transport Minister Andreas Scheuer denied the government was considering setting up a joint fund with carmakers to pay for exhaust systems to make diesel cars cleaner, citing legal and technical concerns about retrofitting older cars.
Der Spiegel magazine reported last week the government could ask carmakers to contribute 5 billion euros ($6 billion) to such a fund, which would also include government payments.
Scheuer told the Passauer Neue Presse newspaper on Tuesday there had not yet been any discussion about funding, and he remained committed to meeting emissions targets using measures already being implemented and without costly hardware retrofits.
"The discussion about hardware retrofits is not appropriate at this point, and definitely not with the participation of taxpayers," he told the newspaper in an interview.
The issue is being closely watched by major German carmakers Volkswagen, Daimler and BMW.
German Chancellor Angela Merkel and her cabinet are due to discuss vehicle emissions and how to avert driving bans during their cabinet retreat this week after Germany's top administrative court ruled in February that local authorities could bar heavily polluting diesel cars.
There has been a global backlash against diesel-engine cars since Volkswagen (VW) admitted in September 2015 to cheating U.S. exhaust tests. The scandal has spread across the industry and boosted investment in electric vehicles.
Of the 15 million diesel cars in Germany, only 2.7 million are equipped with the latest Euro-6 emissions technology.
Scheuer said there was "no reason to panic," noting a combination of incentives and specific measures could help lower emissions in cities now exceeding permitted levels.
He said software updates of some 5.3 million diesel cars to be completed by the auto industry by the end of the year would reduce emissions by up to 30 percent.
He said he had already released the first 20 million euros of 175 million euros in government subsidies to fund the acquisition of electric vehicles for public infrastructure agencies. The initial funds would pay for 2,000 such vehicles, he said.
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