The European Commission has proposed to introduce tough legislation to force down emissions of carbon dioxide from cars, with steep fines on manufacturers that fail to comply.
With several commissioners dissenting, the European Union executive set a four-year phase-in period from 2012 for fines on manufacturers whose fleets exceed an average of 120 grams per km of the main greenhouse gas blamed for global warming.
"This will send a strong signal to the world about the determination of the European Union to take bold measures on climate change," EU Environment Commissioner Stavros Dimas told a news conference.
German Chancellor Angela Merkel criticised the plan as "not economically favourable", telling journalists in Berlin it would burden Germany and its carmakers disproportionately.
German producers of heavier luxury vehicles such as Porsche, with by far the highest emissions of any major carmaker, BMW and Mercedes-Benz, could face billions of euros in fines unless they change course fast.
Fines on companies for non-compliance will start at €20 ($28.80) per new car for each excess gram per km in 2012 on average over the whole fleet, and rise to €95 g/km in 2015.
The DJ Stoxx European car sector index fell 1.4 per cent, triple the broader market's decline. Shares in Porsche were down 3.87 per cent.
Environmental campaigners accused Brussels of a sell-out for phasing in the fines over four years and setting no ambitious long-term goal.
Greenpeace transport spokeswoman Franzisaka Achterberg said the EU had stood up like a lion for the world's climate at a UN conference but "is going down like a lamb and putting carmakers' short-term profits before our common survival".
Car producers denounced the plan, which requires makers of heavier luxury vehicles to make bigger cuts than manufacturers of smaller, lighter cars, and vowed to lobby member states and the European Parliament to fight them.
Of the overall mandatory target, an average of 130 g/km must be achieved from improved engine technology and the rest through biofuels and more efficient gears, tires and air-conditioning.