German automakers and politicians have come to an agreement to cut emissions by updating the software of 5 million diesel cars.
The VDA, Germany's auto industry association, said that German carmakers would install new engine software to make emissions filtering systems more efficient and tackle air pollution by cutting nitrogen oxide levels by 25-30 percent.
BMW, Daimler, Opel and Volkswagen will carry out retrofitting after approval from the KBA, Germany's federal motor authority, the VDA said.
Auto firms also agreed to make financial contribution to an initiative to clean up inner city pollution.
The agreement was reached at a summit in the country's capital, Berlin.
The "national diesel forum", a summit of politicians and car executives, was called yesterday by Germany's transport and environment ministers to address ways to reduce inner-city pollution.
Chancellor Angela Merkel was unable to attend the event due to being away on holiday.
Mike Ramsey, a car analyst at Gartner, welcomed the commitment to cut emissions.
"Diesel engines have been amazing at reducing fuel consumption, but the pollution they produce is costly to treat and the arc of transportation technology is bending towards electrification," he told CNBC via email.
"These announcements, paired with commitments to electrify powertrains, point to a cleaner future."
German automaker 'cartel', allegations of collusion
Shares in the top three German carmakers – Volkswagen, BMW and Daimler – fell sharply last Monday after reports that EU antitrust officials were investigating them over allegations of a "cartel"-style collusion.
One report in German news magazine, Der Spiegel, accused German automakers of using industry committees to agree on costs, supplies, technologies and even the prices of diesel emission treatment systems.
Volkswagen in particular has been hit with controversy. The infamous "dieselgate" scandal, exposed in September 2015, has cost the company more than $25 billion since being slapped with a criminal settlement by the U.S.
Volkswagen's software allowed it to cheat pollution standards during test conditions, but not when actually on roads.
German authorities share responsibility with automakers
The auto industry provides more than 800,000 jobs in the country.
Sven Giegold, a German green politician and member of European Parliament (MEP), said that German authorities were at fault, as well as manufacturers, for failing to spot emissions inconsistencies.
"I think first, of course, the car makers have broken European law, and this has been found by several inquiry committees. But at the same time supervisory authorities were complacent and the responsible ministers were complacent and therefore the guilty is very much upon both, and this is in the end a question of democracy," he told CNBC's Street Signs.
"Is the state really guaranteeing the common good? Or, is it too close to the sectors and manufacturers it is supposed to control at the detriment of consumers and the environment?"
He added: "Many Germans ... demand tougher action by the state for clean air, as well as more distance towards powerful lobbies, and that is something that we need all over Europe; that the state is truly making its supervisory function, and that we do not rely on the U.S. supervisory action in order to discover breaches of law in Europe."
He said that the auto industry should ensure that all cars should produce emissions in line with EU law.
"We want simply that the cars which are on European roads correspond to European law, and this means that the emissions targets have to be fulfilled by each car," he said.
"And on top of that, which is equally guaranteed under European law, air has to be sufficiently clean, also in inner city areas."