NSW Science Minister Verity Firth told AAP petrol stations would have to retrofit their bowsers with specially designed nozzles to trap vapours that escaped from a car's petrol tank when filling up. These vapours would then be pumped into underground storage tanks.

"And what's significant about this is we now have the technology to then recycle these vapours and turn it back into petrol to then be sold again," Ms Firth told ABC Radio today.

Premier Morris Iemma has approved a cabinet plan to force service station owners to install the technology.

Firth said the technology had been available in the US and Europe since the mid-1990s but would be a first for Australia.

"It's incredibly important that we capture this stuff because the volatile organic compounds which come out of your petrol bowsers are one of the key chemical components of smog," she said.

A report by the Department of Environment and Climate Change said pollutants released when cars were refuelled was a health concern, because motorists breathed in cancer-causing benzene.

The parliamentary inquiry found 1600 people die every year in Sydney from illnesses related to air pollution.

A spokesman for Firth said petrol stations in the Sydney, Newcastle and Wollongong areas would be affected by the new environmental requirements.