Yes, Europe went all-in on diesel cars because CO2 and the desperate push to Save The Planet™. Rudy Diesel's engine emits considerably less carbon dioxide than gas-powered cars, so the move was championed and incentivized:
Several European environmental and government studies in the 1990s argued that air quality could be improved by lowering CO2 levels. Developed nations that signed the Kyoto Protocol in 1997 were required to reduce CO2 by eight percent over the following 15 years. The big European car manufacturers, dominated by those from Germany and followed closely by the French and Italian companies, vigorously lobbied European regulators and politicians to further the diesel cause, citing diesel's inherently low CO2 output relative to the gasoline engine. The car manufacturers' position was that diesels would be a quick, effective way to lower overall carbon emissions, which was already the primary pollution concern.
The USA, by the way, did not sign the Kyoto Protocol, although it was the only nation to meet the goal established in it. But a funny thing happened along the road to Saving The Planet, as it turned out that diesel-powered cars had a bit of a downside:
Of course, the nature of diesels to emit higher levels of nitrogen oxides (NOx) and particulates was not of great concern at the time. So rapidly, the European automotive landscape switched. While diesel had a 10 percent market share in the mid-1990s, by 2000 it hit 31 percent. By 2012, it was in the majority at 55 percent.
Suddenly, it began to look as though carbon dioxide wasn't actually as bad as the boffins had claimed; it may not be especially desirable (although it is why we have life on earth, as it drives photosynthesis, which produces oxygen, which is what animals breathe in to power their bodies) - but the NOx and particulates are actually far worse. And so, after years of government subsidies and artificially low prices for diesel fuel and a gratifying rise in diesel vehicles, government buglers now found themselves in the embarrassing position of sounding the call to Retreat!
You know, for a while there, it almost looked as the government didn't have all the answers after all.
Fortunately, government regulators were able to respond relatively quickly; imposing significantly more stringent emissions requirements for diesel vehicles, which required automakers to design "scrubbing" equipment into the exhaust systems. Unfortunately, there were negative effects associated with all of this: it added thousands to the cost of a car and also adversely affected performance, which adversely affected automakers' bottom lines.
Thus was born the "defeat device": code and sensors that could detect when the car was being driven, via impulses from the steering assembly, versus when the car was being tested for emissions. Buyers were pleased to pay a bit more for a car that was a "clean diesel" that could pass emissions tests, yet still deliver the performance and mileage to which they'd become accustomed.
And we all know how that ultimately turned out, as virtually all diesel auto manufacturers come under the scope, customer confidence erodes, and the very governments that brought this all to pass begin to consider the unthinkable: perhaps they might have erred in pushing diesel.