Britain commits billions to green growth

As part of the review, the government said it would cut half a million public sector jobs, raise the retirement age and slash the welfare state in the biggest spending cuts in a generation.

"Like the rest of the public sector we have taken some tough decisions, but we remain on course to deliver on our promise to be the greenest government ever," Energy and Climate Change Secretary Chris Huhne said.

The Conservative finance minister George Osborne pledged 1 billion pounds for investment in a commercial-scale carbon capture and storage CCS demonstration plant at a power station as part of a UK goal to become a world clean technology leader.

The government said it was still committed to funding four plants in total.

Utility company E.ON said earlier on Wednesday that it had withdrawn from the government's CCS demonstration competition, leaving Iberdrola's Scottish Power plant at Longannet as the only remaining contender.

Osborne said the government would set aside another 1 billion pounds for its Green Investment Bank GIB and 860 million pounds for its renewable heat incentive, which pays homes and businesses for using renewable heat, such as ground source heat pumps.

It would devote 200 million pounds mostly to the development of offshore wind power projects.

"I have set aside 1 billion pounds of funding for the bank but I hope much more will be raised from the private sector and from the proceeds of future government asset sales."

Deputy Prime Minister Nick Clegg said earlier in a letter to Liberal Democrat members that the GIB would be funded with at least 2 billion pounds but the government was originally aiming for funding of around 6 billion pounds.

"One billion pounds for the green bank was more than some feared but it still about a quarter of what's needed to have a big impact on green energy and growth," said Steve Lang, head of clean energy at Ernst & Young.

The government plans to introduce the renewable heat incentive in 2011-2012, but not in the form of the previous Labour Government's renewable heat levy, which the coalition said was too complex.

It should increase UK renewable heat production 10-fold over the next 10 years, the government said.

Feed-in tariffs — flat subsidy payments for power generated from renewable sources — will be reformed in the next formal review in 2012, saving 40 million pounds in 2014-2015, while support for lower value renewable technologies would be reduced, the government said.

"The government has identified it is going to cut its costs by 10 percent and that will be as part of the next review," a Department of Energy and Climate Change spokesman told Reuters.

"We will shortly announce the level of deployment and say something about where those costs will be saved and which technologies we will be specifically focusing on."

Other reforms include delaying the start of a corporate carbon-trading scheme called the Carbon Reduction Commitment to 2012 instead of 2011, to reduce the burden on businesses.

Revenue from carbon permit sales should total 1 billion pounds a year by 2014-2015 and will be used to support public finances, including environment spending, rather than be recycled to the scheme's participants, the government said.