Car makers call for help to go greener; on the road.
The European carmakers' association, ACEA, had asked for a EUR40bn loan (about pounds 32bn), which is equal to two years of the research and development budget of its members.
The EU has responded by saying this would equate to more than one third of its annual budget.
Car makers say that a rush to legislate puts jobs and export earnings at risk because there is no guarantee consumers will buy greener cars when they are put on the market.
ACEA president, Christian Streiff, who is also chief executive of Peugeot Citroen, said: "Car makers face increasingly hesitant consumers and call on governments to respond, stimulate the economy and restore consumer confidence."
The ACEA is also asking the EU to introduce incentives for car owners to scrap vehicles over eight years old in a bid to speed up rates of fleet renewal.
Tightening environmental legislation comes as vehicle sales in Europe are falling.
The industry recorded sharp drops in July and August and a total decline of 3.9% across Europe in the first eight months of the year.