Would vehicle engines powered by fossil fuels be allowed today if they had never been invented earlier?

Absolutely; as Jon Mixon hints at, 1. Nothing gets banned until there is monumental, tangible evidence of its detrimental/disastrous effects on people's health (or to a lesser extent, the environment) The second aspect, which is every bit as important is (for already present technology): 2. Nothing gets banned until there is a functionally equivalent replacement which costs about the same as the original (a slight(!) price increase can be acceptable if a) the replacement provides local jobs, and b) the removal of the old technology boosts chances of re-election of the relevant members of the relevant legislative body) Unless 1 and 2 are fulfilled, there's no chance in hell that anything gets banned.

Well, you'd still have steam driven vehicles, since you specifically stated internal combustion, so there would be some knowledge of pollution, and depending on whether anyone had done any research on the existing pollution from wood, coal and oil burning boilers, then yes, they would have had some understanding of the potential pollution from the internal combustion engine... whether or not it would make any difference to it's implementation is another matter...what improvements to steam technology, or other alternatives people would have come up with... perhaps electric cars would have been invented decades before they actually were, making the internal combustion engine irrelevant...