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From July this year, people buying new electric vehicles (EVs) could get as much as $8625 back from the Government.
Transport Minister Michael Wood hoped the scheme would put the handbrake on gas guzzling vehicles making their way into the country.
"If we don't move forward with policies like the Clean Car Standard and the Clean Car Discount, New Zealand will become a dumping ground for the world's dirtiest vehicles.
"At the moment we have one of the dirtiest fleets coming into our country because of the lack of standard to date - we are resolving that," he said.
The cars need to be under $80,000 and have at least a three star safety rating.
The scheme will be expanded to include other low emission vehicles next year.
To pay for this, imported cars with high emissions will cost extra from January next year.
For example, a Toyota Hilux brought into the country could incur a fee of $2900.
"Importantly the policy only applies to new and used cars arriving in New Zealand, so the existing second hand market of cars that lower income families tend to purchase from will not be affected," Wood said.
The announcement comes hot on the heels of the Climate Change Commission's report on how the country should move towards net zero emissions by 2050.
Climate Change Minister James Shaw said transport has the fastest growing emission profile in New Zealand.
"Dealing with the energy that we use to get around within and between our cities is one of the, if not the most urgent of all our climate change challenges," he said.
The scheme is predicted to bring an additional 19,000 clean vehicles into the country's vehicle fleet in the first year of operation.
Drive Electric chair Mark Gilbert said hundreds of thousands of EVs were needed to meet the government's climate targets and the announcement is a step change.
"Most importantly, this announcement says to global car manufacturers New Zealand is serious about EVs."
He was hopeful that utes could eventually become electric.
Green MP Julie Anne Genter failed to get a similar scheme over the line last term, thanks to New Zealand First throwing a spanner in the works.
But now with just Labour at the wheel the scheme has been able to forge ahead - albeit with changes, such as the vehicle price cap.
RNZ understands that part of the reason the scheme wasn't announced sooner was because Labour and the Greens were fighting over details of the scheme.
However, both ministers would not say if any concessions had been made.
National Party transport spokesperson Michael Woodhouse said it was a tax by stealth.
"We welcome incentives, but my concern is that so many New Zealanders, tradies, large families, people in rural and remote areas are going to be asked to pay for this, but not actually have the choice to benefit from it.
"In essence it is a reverse Robin Hood system, they are taking from the poor to give to the rich - and that's just not right," he said.
National supported more positive moves such as exempting EVs from fringe benefit tax, extending road user charge exemptions and allowing EV users access to bus lanes and free parking, Woodhouse said.
Motor Industry Association chief executive David Crawford was happy with the announcement, especially the level of rebate on offer.
However, he thought the Government could go even further.
"The rules around allowing the discount when calculating fringe benefit tax and depreciation will go some way to addressing barriers to uptake of low emission vehicles by businesses.
"However, it stops short of the 50 percent reduction for electric vehicles we have consistently called for," he said.