German Chancellor Angela Merkel has opposed European Union (EU) plans to cut pollution from new cars, saying it was "not economically favourable".
Passenger cars account for more than 10% of EU CO2 emissions
She said the move would burden Germany and its carmakers disproportionately.
Under the EU proposals, carmakers that fail to meet carbon dioxide emission limits by 2012 will face fines.
Penalties will start in 2012 at 20 euros (£14.35; $28.80) per gramme of CO2 over a target level, and will grow to 95 euros in 2015.
Commission President Jose Manuel Barroso said the EU was "committed" to being a world leader in cutting CO2.
However, Germany's BMW and France's Peugeot criticised the move.
BMW said the proposals were "naive" steps that would distort the market in favour of makers of smaller cars.
Peugeot said: "These plans are anti-ecological, anti-social, anti-economical and anti-competitive in relation to non-European Union carmakers."
And Sigrid de Vries, of the European Automobile Manufacturers body, said fines would be "unprecedented" and that industry wanted a realistic system with objectives it could meet.
"If there are penalties, they have to be reasonable with a clear link to the price of CO2 applied to other sectors," she said.
The plan, which needs the backing of EU governments, would put the burden on producers of larger and heavier cars to meet new binding emission limits.
All carmakers that sell vehicles in the 27-nation bloc would face fines if they exceed targets.
EU environment commissioner Stavros Dimas said: "Passenger cars account for about 12% of overall EU carbon dioxide emissions and emissions from transport are continually increasing.
"The aim of the legislation is to reduce CO2 emissions from cars in order to help fight climate change."
Carmakers would have to cut average emissions of CO2 from new passenger cars sold in the EU from about 160 grams per kilometre to an average 130 grams per kilometre in 2012.
As part of the green drive parts and fuel-makers will be asked to make improvements to gearboxes and air-conditioning systems, tyre-pressure monitoring and encourage the use of more biofuels.
However, the BBC's European Business Reporter, Dominic Laurie, said: "Not every firm will have the same target - instead there's a sliding scale that depends on how heavy their cars are.
"Makers of bigger vehicles will be allowed to pollute more - and lighter ones less."
Makers of bigger cars can pool their total automobiles sold with other car companies making lower-emitting cars to meet the average 130 gram target.
Green lobbyists are less than happy with aspects of the EU proposal.
Jos Dings, director of the pressure group Transport and Environment said: "If today's proposal becomes law, it will boost the SUV arms race in Europe, rewarding carmakers for their climate-killing strategy of making ever heavier cars.
"In the long term this strategy will backfire meaning heavier cars, more CO2 emissions and more accident deaths."