The European Commission has rejected demands for a US-like loan to the car industry to help offset the cost of developing environmental technologies.

European carmakers' association ACEA had asked for a EUR40bn loan, equivalent to just two years of the research and development budget of its members. The EU responded this would equate to over one third of its annual budget.

"This idea does not even merit discussion, "a European Commission source told a German newspaper on Tuesday.

Carmakers have argued that a rush to legislate puts jobs and export earnings at risk, because there is no guarantee consumers will buy greener cars once they're on sale.

ACEA president and PSA CEO Christian Streiff said: "Car makers face increasingly hesitant consumers and call on governments to respond, stimulate the economy and restore consumer confidence."

ACEA has also asked the EU to launch incentives for car owners to scrap vehicles over eight years old, over three years, to speed fleet renewal.

Tightening environmental legislation comes as vehicle sales in Europe fall. The industry posted sharp drops in July and August and a decline of 3.9% across Europe in the first eight months of this year.