The bill calls for subsidies for both new cars fitted with particulate filters and old cars that get retrofitted filters. The incentives would result in a shortfall of about 1.2 billion euros in the German states' budgets.
A draft of the legislation is in the upper house.
The sticking point is the planned tax break for new cars with filters. A number of states have joined Rhineland-Palatinate in opposing the bill and backing limits on the incentives.
Said Jochen Dieckmann, finance minister of North Rhine-Westphalia: "I am operating under the assumption that automakers will begin equipping cars with soot filters in 2006 anyway. We should stick to incentives for filter retrofitting."
Horst Metz, Saxony's finance minister, also opposes the bill. "Saxony is neither ready nor currently in a position to suffer such losses in its vehicle tax revenue," he said.
Only budget-neutral incentives should be considered, he said.
Just the thought of new-car incentives is enough to give a stomach ache to Ralf Stegner, finance minister of Schleswig-Holstein. His colleague from Saxony-Anhalt, Karl-Heinz Paque, also is against filter subsidies.
But German Environment Minister Juergen Trittin is backing the subsidies. Last week, during a visit with filter manufacturer Emitec, Trittin called on the states to stop blocking the bill. He said: "A quick introduction of the filters into the market is vital."