Daimler said it and other German automakers took an initial step toward resolving a safety scare over a new air-conditioning refrigerant developed to meet an EU mandate.

Daimler said it had tasked its engineers with developing a completely new air-conditioning system that employs non-flammable carbon dioxide as an alternative to the new, flammable HFO-1234yf refrigerant favored by most of the car industry.

Daimler research and development chief Thomas Weber said Audi, BMW, Porsche and Volkswagen had agreed “to press ahead with this sustainable and safe solution” with Daimler.

VW Chairman Ferdinand Piech had signaled in November that his group would not use HFO-1234yf because of its flammability.

Volkswagen plans to roll out carbon dioxide-based air conditioning systems throughout its entire fleet instead of the Honeywell/DuPont refrigerant called HFO-1234yf, which was created to meet more stringent environmental regulation.

Daimler engineers testing the flammability of HFO-1234yf discovered that it could spark a fire under the hood of the car strong enough to spread throughout the vehicle. In the process, the chemical emits a highly toxic gas when burning.

The critics, including the refrigerant’s producer Honeywell International, argue there are many other flammable materials under the hood of a car and attack Daimler’s refusal to use the more expensive, climate-friendly HFO-1234yf as a thinly veiled attempt to save money.

“Over the course of more than two decades in development, CO2-based automobile air-conditioning systems have experienced a number of performance, cost, safety and environmental issues that have made them a less attractive alternative to automakers globally,” Honeywell said in a statement, after Daimler decided on Thursday to develop a new CO2-based A/C system.

The U.S. suppliers invested heavily in bringing to market the refrigerant, which conforms to a new EU directive. Due to its high price, costing 10 times as much as the current common refrigerant R134a, it’s only commercial application is in cars.

While Daimler sold only about 1.5 million Mercedes and Smart cars last year, VW’s decision means Honeywell and DuPont have lost another 9.3 million vehicles worth of business.

Weber told Reuters during the Geneva auto show on Tuesday that Daimler would be prepared to pay the EU compensation for violating the directive, although he stopped short of calling it a “fine.”

The EU mandated that the existing R134a refrigerant be phased out beginning in January and it will be banned outright in 2017. In order to meet strict new climate change targets set by Brussels, the auto industry agreed to use HFO-1234yf after tests in concluded in 2009 showed it was safe.

However, prompted by safety concerns from Germany’s Federal Environment Agency, Daimler carried out its own tests, which concluded there was no way its engineers could rule out the risk of a potential fire caused by the refrigerant, which also emits a highly toxic gas during combustion.