Volkswagen is offering customers in Germany discounts of up to 10,000 euros (£9,000) if they trade in their old diesel vehicles and buy a new car.
VW will also offer incentives of 1,000-2,380 euros for customers buying alternative energy vehicles, such as electric and hybrid cars.
The incentives will run until the end of this year.
VW said the move would “make a marked contribution to the improvement of air quality in cities.”
The car giant’s other brands, including Porsche, Audi, Skoda, Seat and VW’s commercial vehicle subsidiaries, will also be offering their own versions of the incentive.
VW brands will consider the merits of such a scheme in the UK, a spokesman told the BBC.
Volkswagen agreed to bring in the German plans last week after a top level summit between politicians and the country’s leading carmakers, including BMW, Daimler and Opel.
Diesel cars have been in the spotlight over high levels of nitrogen oxide emissions.
Two years ago, VW became embroiled in a scandal when it was discovered it had cheated emissions tests that affected 11 million vehicles worldwide.
Carmakers, including VW, BMW, Daimler and Opel, have offered to reduce emissions with free software updates for newer vehicles and trade-in payments for cars more than 10 years old.
In a note, analysts at Evercore ISI said they expected to see more scrappage schemes across Europe following initiatives from VW and other carmakers.
“Over the last few days, Europe has experienced a wave of significant… scrapping headlines that will likely lead to meaningful incremental buying activity and the replacement of old diesel vehicles,” they said.
“So far, actions are largely related to German [manufacturers]… We assume that more non-German brands will follow.”
The analysts said further measures were likely to significantly boost car sales, as consumers rushed to cash in their discounts.
They pointed to a 30-40% jump in sales in Germany, in the months following a national scrappage scheme launched in January 2009.