The Swedish manufacturer has set itself a target of selling 65,000 diesel cars in the large-car segment.
'A competitive engine is nothing less than a matter of survival in Europe,' the manufacturer said.
In 2002, 40% of all cars sold in Europe will be diesel cars, Volvo said, but that figure is expected to increase to 46% by 2005.
Volvo said that although there is considerable demand for diesel in all segments, it is primarily in those where the XC90, S80, V70, XC70 and S60 compete.
'The negative perception of the diesel engine's inadequate power and poor comfort is a thing of the past,' said Volvo president and chief executive officer Hans-Olov Olsson. 'Nowadays even the most discerning customers want diesels. In our position in the premium segment, this provides us with an exciting and tough challenge.'
Volvo says Germany is the largest market for its cars, with sales of 14,000 large diesel-engine cars expected there in 2002.
The UK follows with 8,500 units, then Italy with 8,400 cars, Belgium with 6,000 units, Spain with 5,400 units and France with sales of 5,200 units.
'In France 92% of all large Volvos sold will be diesel cars, while Belgium and Italy will exceed the 80% mark. Austria has a 77% diesel share, followed by Portugal with 73%,' it added.
Olsson said: 'Our Cross Country family consists of two models: the Volvo XC90 and the Volvo XC70. It's extremely important to have a good diesel engine in this category. And since our latest engine has already convinced the market that we are among the best when it comes to diesel technology, we expect the diesel versions of the XC90 and XC70 to be very successful.'