The front page of Sydney's Daily Telegraph reported the government was planning to apply a carbon tax to family cars, which would force up prices by thousands of dollars.
The government was quick to calm down the story, with Energy Minister Josh Frydenberg telling the ABC there would be no carbon tax.
"This is a complete beat-up. There is as much chance of a carbon tax on cars as Elvis making a comeback. The only thing that the government is interested in is, how do we reduce the fuel costs for families on their vehicles? There's been consultation going back as far as October 2015 on fuel efficiency standards and the government has made no decisions on the policy to go forward in this particular area."
While no decision has been made, the government is still considering new rules that would regulate how much carbon cars can emit.
But it says that's different to a carbon tax.
The Infrastructure Department has proposed new standards that would force car-makers to reduce greenhouse gas emissions, or face fines.
Opposition leader Bill Shorten says Labor does not have any plans for a carbon tax either, but the opposition is ready to support new emissions standards.
"We offer Mr Turnbull our cooperation to get on and tackle climate change. You know, really, Mr Turnbull should stop faffing about (dithering) and just establish vehicle emissions standards to reduce pollution. We will work with Mr Turnbull. We just say to Mr Turnbull, just get on and do something!"
Consumer advocates are concerned fines for non-compliant car-makers would be passed on to buyers.
The Australian Automobile Association warns the proposal could see the price of the average family car rise by thousands of dollars.
The debate over vehicle emissions comes during a busy week for the energy minister, who is preparing for a meeting with his state counterparts on the recommendations of the Finkel Review.
The government has already endorsed 49 of chief Scientist Alan Finkel's 50 recommendations to improve the reliability and affordability of electricity.
Among them are a plan for more battery storage, and a new requirement that coal-fired power stations provide three years' notice before shutting down.
But the party room has not yet reached a decision on the most controversial suggestion: a clean energy target that would require power companies to source a percentage of their electricity from renewables.
"I'm sure the states would like to discuss it and I'm happy to talk to them about it, but the point of the government's position on a clean energy target is that we haven't finalised our internal discussions. There are a number of issues that have been raised around modelling assumptions, and the like, and we're continuing to consult with key stakeholders. So this is a very big decision to move down the path of a new mechanism. It's one that Dr Finkel himself said should be in place by 2020, so we don't have to rush it."
The COAG meeting of state and federal energy ministers takes place on Friday.
