The government is thought to want to avoid any punitive taxation or increased levies on diesel cars and vans. Instead councils would have to fund altering buses and other transport to make them cleaner, changing road layouts, altering features such as speed humps, and re-programming traffic lights to make vehicle-flow smoother.
Ministers may consult on a diesel scrappage scheme later this year, but there is no firm commitment.
SMMT chief executive Mike Hawes said it was important to avoid outright bans on diesels, which would hurt the sector.
“Currently demand for alternatively fuelled vehicles is growing but still at a very low level. The industry instead wants a positive approach which gives consumers incentives to purchase these cars. We could undermine the UK’s successful automotive sector if we don’t allow enough time for the industry to adjust.”