A senior minister says the Turnbull government can 'absolutely' rule out a so-called carbon tax on cars and has called on Labor to do the same.
Reports suggest new hardline carbon-emission rules are being considered, which industry sources say could push up the price of a new car by as much as $5000.
Prime Minister Malcolm Turnbull told reporters in London on Tuesday he had not seen the reports.
'Certainly no decisions have been made in that regard at all,' he said.
Education Minister Simon Birmingham told Sky News the government could rule out a carbon tax-type measure on cars.
'This is not something the government would entertain, we do want to make sure that we drive fuel efficiency in vehicles, because that's actually about making it cheaper for consumers and making sure people are using less petrol,' he said.
Energy Minister Josh Frydenberg described the reports as a beat-up, arguing consultation on fuel efficiency standards has been ongoing since October 2015 and no final decision has been made.
'There is as much chance of a carbon tax on cars as Elvis making a comeback,' he told the ABC.
'The only thing the government is interested in is how do we reduce the fuel costs for families on their vehicles.'
Conservative Liberal senator Eric Abetz said he was very pleased the issue had been put 'back in the cupboard where it belongs' by senior ministers.
'The suggestion that the department put out had all the hallmarks of a mini carbon tax which is something that is anathema to the Australian people,' Senator Abetz told Sky News.
Shadow Transport and Infrastructure Minister Anthony Albanese told SKY NEWS if you do the right thing on a fuel stance you can reduce cost because.
'You can have more efficient fuel usage, the industry understands that which is why they are supportive of it,' he said.
'There's a range of reasons why you want fuel efficient cars. One reason is climate change and others as well.'
Opposition leader Bill Shorten told reporters in South Australia Labor is open to stricter vehicle emission standards.
'We're not interested in having some sort of carbon tax on motor vechiles,' he said.
We think that's a crazy idea.'
We do think there should be emussion standards for vehicles that's where the whole of the rest of the world is moving and we do want to reduce pollution.'
Peak motoring body, the Australian Automobile Association believes a policy that drives such a price rise would have the perverse outcome of stopping people buying new cars, instead forcing them to keep their older, dirtier vehicles.
'Even the makers of the Toyota Prius would be penalised under the government's proposed emission scheme rules,' chief executive Michael Bradley told ABC radio.