The scheme, part of Germany's immediate clean air programme for 2017-2020, is expected to be rolled out in about 90 municipalities which exceeded the limits for nitrogen oxides (NOx) emissions in 2016 or 2017.
The European Commission said the project would encourage bus operators to invest in greener buses.
"The measure should contribute to reducing nitrogen oxides emissions by over 2,000 tonnes per year while limiting distortions of competition," the EU antitrust enforcer said in a statement.