Berlin is working to implement a European Union directive that says biofuels should make up 10 percent of EU vehicle fuel consumption by 2020 to make the continent less dependent on foreign supplies.
The new E10 petrol contains 10 percent biofuel made from crops and has been sold at German filling stations since last month.
But many drivers have spurned E10 because they fear damage to their motors even though the VDA auto federation says it is suitable for 93 percent of petrol-driven vehicles.
Environment Minister Norbert Röttgen has slammed the failed launch as an "unacceptable screw-up" by the oil industry, while Economy Minister Rainer Brüderle said there was a "fundamental communication problem."
He has organized a roundtable in Berlin to get the E10 programme back on
Brüderle has called representatives from the oil industry, car manufacturers and other interested parties to a "petrol summit" in Berlin to discuss what the Financial Times Deutschland dubbed the "debacle of the E10 fuel's introduction."
Instead of buying E10, car owners are opting for traditional fuel, even if it costs more, said Tomas Gloos, a petrol-station manager in Frankfurt.
Some drivers buy E10, but "no more than 10 percent," Gloos told AFP, and "most of them do so without knowing it."
One customer who chose the new fuel was Marietta Hille, a woman in her fifties who complained that "there was no information available ahead of time" but bought E10 nonetheless because of its price.
Last week, a litre of E10 cost €1.54 ($8.14 per gallon), compared with €1.62 for super Plus, a 98-octane option.
"Classic" Super petrol, also called E5, contains up to five percent biofuel, but the station run by Gloos in Frankfurt's Westend had almost none in stock in an attempt to push clients towards E10.
That has not worked well however, and many in the wealthy part of Germany's financial capital have preferred to pay more for Super Plus instead, leading to supply bottlenecks.
For several days, Gloos' station was running "nearly on empty" for the higher octane fuel.
The German petroleum industry federation MWV said last week that refineries would have to adapt to weak demand for E10, sparking the wrath of political leaders.
But while the oil industry has been accused of providing little information on the new fuel, environmental associations have slammed it for poor results in carbon dioxide emission tests.
They note also that biofuels require farmland that could be used to raise crops for food, putting pressure on prices that are now attracting consumers' attention.
E10 was launched in France in 2009 and a distribution network now covers around 20 percent of all filling stations there.
At the end of 2010 however, biofuels only accounted for 13 percent of all French sales whereas the government would like to see it used much more widely.