On the first anniversary of Northern Rock falsely reassuring markets, and 75 years since President Roosevelt launched a New Deal to rescue the US from financial crisis, a new group of experts in finance, energy and the environment have come together to propose a ‘Green New Deal’ for the UK.

And, as the Green New Deal Group launch their proposals, new analysis suggests that from the end of July 2008 there is only 100 months, or less, to stabilise concentrations of greenhouse gases in the atmosphere before we hit a potential point of no return.

The Green New Deal is a response to the credit crunch and wider energy and food crises, and to the lack of comprehensive, joined-up action from politicians. It calls for:

Massive investment in renewable energy and wider environmental transformation in the UK, leading to,

• The creation of thousands of new green collar jobs
• Reining in reckless aspects of the finance sector – but making low-cost capital available to fund the UK’s green economic shift
• Building a new alliance between environmentalists, industry, agriculture, and unions to put the interests of the real economy ahead of those of footloose finance

The global economy is facing a ‘triple crunch’: a combination of a credit-fuelled financial crisis, accelerating climate change and soaring energy prices underpinned by encroaching peak oil. It is increasingly clear that these three overlapping events threaten to develop into a perfect storm, the like of which has not been seen since the Great Depression, with potentially devastating consequences.

As in past times of crises, disparate groups have come together to propose a new solution to an epochal challenge. The Green New Deal Group, drawing inspiration from the tone of President Roosevelt’s comprehensive response to the Great Depression, propose a modernised version, a ‘Green New Deal’ designed to power a renewables revolution, create thousands of green-collar jobs and rein in the distorting power of the finance sector while making more low-cost capital available for pressing priorities.

Seventy-five years ago, Roosevelt’s courageous programme was implemented in an unprecedented ‘100-days of lawmaking’. And, as the Green New Deal Group launch their proposals, new analysis suggests that from the end of July 2008 there is only 100 months, or less, to stabilise concentrations of greenhouse gases in the atmosphere before we hit a potential point of no return. This is the moment when the likelihood of irreversible changes in the climate becomes unacceptably high.

The most serious global crisis since the Great Depression calls for serious reform the like of which has not, yet, been considered by politicians. This entails re-regulating finance and taxation plus a huge transformational programme aimed at substantially reducing the use of fossil fuels and, in the process, tackling the unemployment and decline in demand caused by the credit crunch. It involves policies and new funding mechanisms that will reduce emissions and allow us to cope better with the coming energy shortages caused by peak oil.

International in outlook, the Green New Deal requires action at local, national, regional and global levels. Focusing first on the specific needs of the UK, the Green New Deal outlines an interlocking programme of action that will require an ambitious legislative programme backed by a bold new alliance of industry, agriculture, labour and environmentalists.

In the midst of unfolding global crises, as Parliament rises on 22 July, the Green New Deal Group challenges government to go away, do its homework, and come back in the Autumn with a comprehensive legislative programme equivalent to that implemented by Roosevelt 75 years ago – a ‘Green New Deal’.

Proposal’s set out in the Group’s report include:

• Executing a bold new vision for a low-carbon energy system that will include making ‘every building a power station’.
• Creating and training a ‘carbon army’ of workers to provide the human resources for a vast environmental reconstruction programme.
• Establishing an Oil Legacy Fund, paid for by a windfall tax on the profits of oil and gas companies as part of a wide-ranging package of financial innovations and incentives to assemble the tens of billions of pounds that need to be spent. These would also include Local Authority green bonds, green gilts and green family savings bonds. The monies raised would help deal with the effects of climate change and smooth the transition to a low-carbon economy.
• Ensuring more realistic fossil fuel prices that include the cost to the environment, and that are high enough to tackle climate change by creating economic incentives to drive efficiency and bring alternative fuels to market. This will provide funding for the Green New Deal and safety nets to those vulnerable to higher prices via rapidly rising carbon taxes and revenue from carbon trading.
• Minimising corporate tax evasion by clamping down on tax havens and corporate financial reporting. A range of measures including deducting tax at source for all income paid to financial institutions in tax havens would provide much-needed sources of public finance at a time when economic contraction is reducing conventional tax receipts.
• Re-regulating the domestic financial system. Inspired by reforms implemented in the 1930s, this would imply cutting interest rates across the board– including the reduction of the Bank of England’s interest rate - and changes in debt-management policy to enable reductions in interest rates across all government borrowing. This is designed to help those borrowing to build a new energy and transport infrastructure. In parallel, to prevent inflation, we want to see much tighter regulation of the wider financial environment.
• Breaking up the discredited financial institutions that have needed so much public money to prop them up in the latest credit crunch. Large banking and finance groups should be forcibly demerged. Retail banking should be split from both corporate finance (merchant banking) and from securities dealing. The demerged units should then be split into smaller banks. Mega banks make mega mistakes that affect us all. Instead of institutions that are ‘too big to fail’, we need institutions that are small enough to fail without creating problems for depositors and the wider public.

The Green New Deal Group urges the UK Government to take action at the international level to help build the orderly, well-regulated and supportive policy and financial environment that is required to restore economic stability and nurture environmental sustainability, including:

• Allowing all nations far greater autonomy over domestic monetary policy (interest rates and money supply) and fiscal policy (government spending and taxation).
• Setting a formal international target for atmospheric greenhouse gas concentrations that keeps future temperature rises as far below 2°C as possible.
• Giving poorer countries the opportunity to escape poverty without fuelling global warming by helping to finance massive investment in climate-change adaptation and renewable energy.

In this way the members of the Green New Deal Group believe we can begin to stabilise the current crisis, and lay the foundations for the emergence of a set of resilient low carbon economies, rich in jobs and based on independent sources of energy supply.The Green New Deal will rekindle a vital sense of purpose, restoring public trust and refocusing the use of capital on public priorities and sustainability. In this way it can also help deliver a wide range of social benefits that can greatly improve quality of life in the future. There is also an immediate imperative to restore some faith that society can survive the dreadful threats it now faces as a result of the triple crunch.

Beyond that, the Group’s members believe we can deliver a crucial national plan for a low-energy future and its provision on the ground. The absence of any such plan at present leaves the country very vulnerable.

The Green New Deal Group is, in alphabetical order: Larry Elliott, Economics Editor of the Guardian, Colin Hines,Co-Director of Finance for the Future, former head of Greenpeace International’s Economics Unit, Tony Juniper, former Director of Friends of the Earth, Jeremy Leggett, founder and Chairman of Solarcentury and SolarAid, Caroline Lucas, Green Party MEP, Richard Murphy, Co-Director of Finance for the Future and Director, Tax Research LLP, Ann Pettifor, former head of the Jubilee 2000 debt relief campaign, Campaign Director of Operation Noah, Charles Secrett, Advisor on Sustainable Development, former Director of Friends of the Earth, Andrew Simms, Policy Director, nef (the new economics foundation).

LONDON- The looming peak in world oil production will set back international development and threatens to hinder efforts to make poverty history, a report by a group of UK lawmakers said.

While oil's rally to a record high is causing economic pain in developed countries, its impact on international development is being overlooked, the report by the All Party Parliamentary Group on Peak Oil and development groups RESET and Practical Action said.

"The deepening energy crisis has the potential to make poverty a permanent state for a growing number of people, undoing the development efforts of a generation," the report released on Monday said.

"Communities across the globe are more vulnerable than ever, living in an unsustainable present and facing an uncertain future."

A rally in oil prices, which hit a record $147.27 a barrel earlier this month, is leading to more interest in peak oil -- the controversial view that supply has reached, or will soon reach, a high point and then fall.

The parliamentary group, chaired by lawmaker John Hemming, was formed in 2007 to consider the production outlook and the consequences of declining supply for the British and world economy. It has 20 members.

Its report refers to warnings that peak oil is likely to occur "before 2015" and the current jump in oil prices is "a prelude to even more severe increases in the next decade," a statement issued with the report said.

Among its recommendations are the formation of a working group on energy security and international development, and funding measures in the humanitarian sector that boost local food production and energy security.

Peak oil has long been considered marginal and the theory has its detractors who say technology can extend the life of the world's reserves and point out that previous predictions of a peak have been premature.

Other critics of peak oil include British oil company BP Plc (BP.L: Quote, Profile, Research), which argues that any peak in world oil production would be because of a decline in demand rather than constraint on supply.

But the report said the implications of peak oil within the next five years demand attention.

"It is clear that the current level of global energy consumption is unsustainable, from both environmental and geological points of view."  To see the report please click here.

Reporting by Alex Lawler, editing by Anthony Barker

The price of oil looks set to fall further in the coming days despite continued hurricane fears and concern over the political impasse between the United States and Iran.

Energy analysts argue that the value of "black gold" will see further reductions - having already fallen around $20 from highs above $147 a barrel just a week and a half ago.

Light sweet crude for September delivery fell $2.64 to $125.78 a barrel in trading on the New York Mercantile Exchange (NYMEX), adding to a $3 fall in the previous day's session. In London, the cost of a barrel of Brent crude fell a further $2 to trade just above $127 a barrel.

Rob Laughlin, senior energy broker for MF Global, says that all of a sudden stocks are being viewed as cheap. "We've seen the exiting of some of the speculative fund money re-entering equity markets," he said. "It's the first time we've seen this since February/March time."

He also believes that a reining in of consumption by what he calls "Mr and Mrs America" has also helped, as seen in recent data from Mastercard that showed US petrol demand fell 3.3pc last week, its 13th consecutive weekly fall.

The soaring price of gasoline has compounded the strains on America's cash-strapped consumers, forcing Americans to drive less, or take up more efficient cars. Sales of luxury pick-up trucks and SUVs have tumbled 18pc in the last year.

US oil inventories fell less than expected last week, down 1.6m barrels to 295.3m barrels, according to the latest report from the US Energy Information Administration.

Data from the energy markets also shows that speculation is beginning to wane, as the number of outstanding oil future contracts dropped to their lowest level in 17 months, with open interest on NYMEX falling by 2.6pc to 1.23m contracts.

Barclays Capital commodities analyst Kevin Norrish said: "People had a pretty good return in terms of investment activity, but with growing uncertainty about the global financial climate, it's not surprising that people would want to take some risk off the market.

"The fundamentals haven't changed, but oil probably rose too high too fast," he added.

The recent price fall has come despite concerns over the future path of Hurricane Dolly, which on Wednesday was heading for landfall around the US-Mexican border, but had avoided the rigs in the Gulf of Mexico.

The gulf accounts for around 25pc of all US oil production, and the fact that Dolly appears to have missed the area only added to yesterday's price fall.

Hopes of some form of peace talks between the US and Iran have also helped push the price down further, although MF Global's Mr Laughlin remains sceptical as to whether such hope will become a reality.

"Technically the market has the ability to come down to $120 a barrel, but will we see sub-$100, I think not. This is a retracement, not a complete collapse," argues Mr Loughlin.

But some in the market disagree, with Lehman Brothers' chief energy economist, Ed Morse, arguing that oil is nearing a tipping point. Mr Morse, who drastically cut his forecast for growth in demand next year, said the price of crude oil will fall to an average of $90 a barrel in the first three months of 2009.

"High prices and slower economic growth have driven oil demand in the US lower," wrote Mr Morse in a research note. "With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life."

His thesis is based on his belief that world demand has weakened overall, in spite of demand from China and other developing nations.

Lehmans said it expects the price of crude oil to fall back to an average of $90 a barrel in the first quarter of 2009.

It now forecasts annual oil demand for 2008 at 86.3m barrels a day, a growth of 790,000 bpd from 2007.

As Congress debates how to curtail the role of speculators and rein in rising oil prices, a federal task force said Tuesday that it had so far found no evidence that those investors are systematically pushing up the cost of energy.

Instead, in an interim report made public on Tuesday, the task force said that its research “does not support the hypothesis that the activity of these groups is driving prices higher.”

The preliminary study concluded that the rise in oil prices over the last five years was “largely due” to fundamental factors like rapidly rising consumption and sluggish growth in energy supplies worldwide.

The analysis was headed by the Commodity Futures Trading Commission with help from six other agencies, including the Federal Reserve and the Treasury.

It offers the government’s most authoritative view to date on whether investors, using specialized instruments known as index funds and commodity swaps, have contributed to the sharp run-up in oil prices since 2002.

The issue has been fiercely debated as oil surged above $140 a barrel and gasoline rose above $4 a gallon, prompting consumer groups to put fierce pressure on lawmakers and regulators.

Congress has held dozens of hearings since January to explore proposals that range from expanding offshore drilling to expelling institutional investors from the commodity markets.

But the notion with the most political traction so far is a proposal from the Senate Democratic leadership that would restrict speculators’ role in futures markets, apply those restrictions to any foreign exchange open to traders in the United States, and extend the C.F.T.C.’s authority to cover swaps trading that does not occur on public exchanges.

In debate on that bill this week, its supporters have repeatedly predicted that reducing the growing role of speculators would allow energy prices to fall.

In its report, the federal task force acknowledged that investors had flocked to the energy futures markets in recent years, attracted by high returns. But the task force said that a review of both public and nonpublic data shows that speculators could not be fairly blamed for rising prices.

For example, swap dealers, who privately offer investors a future return linked to commodity markets, were roughly balanced between purchases and sales of energy futures contracts. And in the first five months of 2008, more of these swap positions were selling than buying. In that same period, oil prices rose 28 percent.

The report’s key finding was that speculative investors more often changed their positions after prices had moved, not before.

That suggests that these traders “are responding to new information — just as one would expect in an efficiently operating market,” the report said.

The task force, led by the C.F.T.C., includes staffers from the departments of Agriculture and Energy, the Treasury, the Federal Reserve, the Federal Trade Commission, and the Securities and Exchange Commission. It will release a complete study in September.

In identifying the drivers of energy prices, the report noted that oil consumption grew 3.9 percent between 2004 and 2007. At the same time, oil supplies lagged that demand, with production growth from nations outside the Organization of the Petroleum Exporting Countries slowing to levels well below the historic averages.

After settling at a record $145.29 a barrel on July 3, oil futures on the New York Mercantile Exchange have been sliding in recent weeks. On Tuesday, oil fell $3.09 to $127.95 a barrel. Average gasoline prices have also been declining recently, from a record of $4.11 a gallon on July 17 to $4.05 a gallon on Tuesday.

The future of BP’s investment in Russia is hanging in the balance after Robert Dudley, chief executive of TNK-BP, decided to quit the country.

In a humiliating defeat for Britain’s largest company, chief executive Tony Hayward claimed that Mr Dudley had left Russia “temporarily”, blaming an intense campaign of harassment from TNK-BP’s Russian co-owners, Alfa, Access and Renova (AAR), that had been “deeply unpleasant” for Mr Dudley and left him unable to carry out his job.

His departure from Moscow this evening was not disclosed until Mr Dudley was in the air en route to an undisclosed location.

Mr Hayward expressed full support for Mr Dudley, describing him as an “outstanding CEO” and insisted that the company would use “every means at its disposal that remains well within the law” to resist AAR’s efforts to seize management control of TNK-BP.

He said BP intended to pursue legal action “to recover any and all losses” suffered by BP as a result of breaches of a shareholder agreement signed between AAR and BP at the formation of the group as a 50:50 joint venture in 2003.

“AAR wants to tear up the agreement they made with us,” he said. “We are not going to be intimidated by their strong-arm tactics.”

Despite BP’s insistence that Mr Dudley could continue to run TNK-BP from outside Russia, the decision to pull out has compounded the impression that AAR has now gained the upper hand in its battle for control of the group, Russia’s third-largest producer of crude oil.

A statement last night from Mikhail Fridman, one of the four Russian oligarchs who control AAR, said that it was a “ridiculous notion” to suggest that Mr Dudley could run the company “by remote control from London”.

“This approach demonstrates that BP is without question running TNK-BP as a subsidiary,” he said. “Robert Dudley has proposed a long distance relationship that is doomed to fail.”

Sir Peter Sutherland, BP chairman, said that AAR had been “orchestrating a campaign of harassment” to gain control of TNK-BP. “There has even been manipulation of elements of the Russian state as part of this campaign. AAR is doing enormous damage to Russia and to globalisation,” he said.

Lord Robertson of Port Ellen, the former NATO Secretary-General and TNK-BP deputy chairman, expressed outrage at AAR’s actions: “AAR’s efforts to wrest control of the company through illegitimate means are damaging the company and, regrettably, Russia’s reputation among international investors.”

BP stopped short of criticising the Russian government directly for its failure to intervene in the dispute. “I don’t believe that we are in a dispute with the Russian state,” said Mr Hayward.

TNK-BP has been the victim of a campaign of raids by Russian government agencies including the federal migration service, which last week refused to give Mr Dudley a new annual visa. It granted him only a 10-day visa that allowed him to stay in Russia until Tuesday.

Mr Dudley said he was leaving because of “uncertainties surrounding the status of my work visa and the sustained harassment of the company and myself”.

BP and AAR both own 50 per cent of TNK-BP, a critical part of the British oil group’s global business. It pumps 1.4 million barrels of crude per day - of which BP’s half-share represents a quarter of its global output - and has 8.2 billion barrels of proven reserves, representing 20 per cent of BP’s total.

BP has been relying on TNK-BP for growth, and in 2006, the company obtained three-quarters of its new reserves from Russia.

BP claims that TNK-BP has generated more than $70 billion in tax revenues for the Russian government and has paid out more than $20 billion to its shareholders in dividends.

The Arctic holds as many as 90bn barrels of undiscovered oil and has as much undiscovered gas as all the reserves known to exist in Russia, US government scientists have said in the first state assessment of the region.

The estimates could fuel the race among polar nations, such as Russia, the US, Denmark, Norway and Canada, vying for control of the region, though the study said Russia and the Alaska platform appeared to have the most undiscovered resources.

Alaska's large estimated holdings are likely to stir the debate about opening protected areas of the state to development.

The 90bn barrels of undiscovered oil the US Geological Survey believes the Arctic holds is 13 per cent of the world's undiscovered oil - about the known reserves of the United Arab Emirates. The 1,669,000bn cubic feet of natural gas are equivalent to 30 per cent of undiscovered gas reserves.

"The extensive Arctic continental shelf may constitute the geographically largest unexplored prospective area for petroleum remaining on earth," the USGS said. Its report only makes estimates based on conventional resources recoverable through a well bore; there could be more trapped in heavy sands or shale.

Last August, Russia planted its flag on the seabed 4km under the North Pole, raising fears of a rush to grab the Arctic's mineral resources. Denmark in May called a summit of the five Arctic powers to try to reiterate the countries' commitment to the UN's Law of the Sea Convention that governs territorial waters.

Yet Donald Gautier, a USGS scientist, said most of the undiscovered resources were in areas already under territorial claims, and the Pole itself did not appear "very interesting" for fossil fuels.

Commercial interest in exploiting the Arctic has increased with Royal Dutch Shell, the Anglo-Dutch energy group, pushing to help Russia develop gas from the Yamal region, and Total having won the right to do so at Russia's giant Shtokman gas field.

In the US, companies are pushing into Arctic Alaska, while Denmark has drawn interest in exploring off Greenland.

Mr Gautier said: "Only Arctic Alaska really booms out.'' It shows the most promise for oil resources, while Russia shows the most for natural gas.

Consultants Wood Mackenzie in 2006 estimated the Arctic basins, including those being developed, held 233bn barrels of discovered oil and gas and another 166bn that had yet to be found, most of it gas.

A lack of adequate gas storage has left Britain's energy market like a “house of cards”, more vulnerable to supply shocks than any other country in Western Europe, according to a leading energy analyst.

Four years after becoming a net gas importer, Britain still has one of the lowest levels of gas storage capacity in Europe - enough to supply consumers for about two weeks. That is equivalent to about 4 per cent of annual demand, compared with 20 per cent in both France and Germany.

John Hall, an energy analyst, said that this acute shortage was a key factor creating volatility in Britain's wholesale gas market, which in turn is resulting in bigger bills.

“Without more storage the UK is terribly vulnerable to supply disruptions,” Mr Hall said, adding that the situation was exacerbating tension in Britain's gas market, the third-largest in the world after America and Russia.

“If the Government was faced with a situation where we couldn't get gas from the Continent for some reason, the UK would be in serious trouble,” he said, adding that such a situation could lead to power cuts and the temporary closure of large industrial plants.

“We don't have a long-term plan and we have depleted our own resources. It's a house of cards.”

Historically, the UK has not built gas storage facilities because of its easy access to reserves in the North Sea. In the event of a supply shortfall, fresh supplies could simply be pumped directly to consumers.

However, with the rapid depletion of these resources, there is an urgent need for more storage to help to deal with potential disruptions such as the closure of one of the pipelines linking Britain with Europe, or a delay to shipments of liquefied natural gas.

The problem is likely to become increasingly acute. About 40 per cent of UK gas supplies will be imported this year, up from 27 per cent in the previous 12 months. That proportion is predicted to rise to 75 per cent by 2015.

A spokesman for E.ON said: “The theory is that when gas is cheap in the summer you buy a lot of it and you pull it out of storage in the winter. It helps to smooth out market volatility. But without storage on a large scale you have much less ability to deal with disruptions to supply.”

Since 1985, the bulk of the UK's gas storage capacity has been held at a site called Rough in the North Sea, which is operated by Centrica. The gas is stored in rock formations 2,700 metres beneath the seabed. Four smaller facilities exist at onshore sites.

Ten new gas storage projects have been proposed, mostly in Cheshire, Dorset and Yorkshire, to double storage capacity to about 8 per cent of annual demand. This would still be less than half the storage rates of France and Germany and most proposals are stuck in the planning system. Difficulty winning permission for such large projects has been a significant problem for power companies, especially since the fire at the Buncefield fuel depot in 2005 lowered public confidence in the industry.

E.ON, for example, has two projects planned: a 165 million cubic metre facility at Holford in Cheshire, and a 420 million cubic metre project called Whitehill in the East Riding of Yorkshire. The latter has not yet been approved.

A spokesman for the Department for Business said it was “vital” for the planning issue to be resolved this year with new legislation.

A fresh round of energy price rises looked inevitable today as Scottish & Southern Energy (SSE) issued a stark warning that its first- half profits would be substantially lower than the results achieved in previous years.

Ian Marchant, chief executive of SSE, said that it was becoming increasing difficult to keep retail energy prices down, as wholesale prices soar.

"The extent of the energy shock with which the entire global economy is having to contend has been well-documented, and its full impact on prices for electricity and gas in the UK has still to be felt. We are continuing to resist the pressure to put up prices for domestic customers, but doing so is becoming more difficult by the day," Mr Marchant said.

In previous years, SSE has made most of its pre-tax profits in the first six months of the year. However, this year the second half is expected to be stronger.

The energy supplier, which has more than 9 million customer accounts, said in a statement for the annual meeting that a stronger second half is expected to result in a marginal rise in full-year adjusted pre-tax profit, compared with last year when the second half was weaker than the first.

"In line with this, adjusted profit before tax for the six months to 30 September 2008 will be substantially lower than in the same six months in 2006 and 2007," it said in an interim management statement released today.

The statement continued: "So far, 2008/09 has been characterised by extremely volatile wholesale markets for electricity and gas, and this may continue. Despite this, SSE still expects to deliver a modest increase in adjusted profit before tax in the year to March 31 2009."

The company said that it remained committed to delivering a dividend increase of at least 4% real growth. It added that the dividend growth would be possible because of a step-up in investment, including the many opportunities arising from our acquisition of Airtricity, the Irish wind farm business.

· Energy CO2 capture must be made mandatory, report urges
· Protesters target planned plant in Kent next month

The government will come under increased pressure today to ban new coal-fired power stations such as the one planned for Kingsnorth in Kent unless they are equipped to trap and store carbon pollution underground, as a committee of MPs publishes a critical report.

The environmental audit committee urges ministers to make it clear that coal power plants that do not fit carbon capture and storage (CCS) equipment will be closed down. It says the government must set a deadline, after which the operation of unabated coal-fired power stations should not be permitted.

Tim Yeo, chairman of the committee, said: "We cannot afford to develop new coal-fired power stations when we have no guarantee about when they will be fitted with CCS, if at all."

A failure to set such a deadline would make it difficult for the UK to meet carbon-reduction targets, the committee said.

The government is debating whether to allow the German-owned utility E.ON to press ahead with a new coal-fired power station at Kingsnorth in Kent. The company wants to proceed with the scheme, promising to fit CCS later if it can be proved to be technically and financially viable.

Environmentalists see the Kent project as a vital test of the government's green credentials and want Kingsnorth given the go-ahead only if CCS is installed. Greenpeace believes the environmental audit committee's conclusions support its case and leaves the government with its back against the wall.

John Sauven, Greenpeace's executive director, said: "Gordon Brown must now show he has the courage to tackle the threats of energy security, climate change and high energy prices by introducing tough new standards for power stations that limit global-warming emissions. And, in doing so, he must rule out current plans for Kingsnorth."

Last month, David Cameron said a future Conservative government would impose such emissions restrictions, to in effect ban new coal plants without CCS.

Today's report said CCS technology could "contribute significantly to emissions reductions" and could play a decisive role in the battle against global warming. But that progress has been "regrettably slow".

No full-scale CCS project that buries pollution from a power plant has yet been built, though the UK government is running a competition that aims to demonstrate the technology by 2014.

Supporters say the technology could remove 90% of the carbon emissions from coal and will be critical in developing countries such as India and China. However, critics say it is unproven and that governments have underestimated the scale and expense of the vast infrastructure that would be needed.

Even with the promise of CCS, the committee warned that coal should be seen as a last resort in the UK. The committee said the government could be considering a new era of coal-fired power stations because it was the easy option, and warned that such an approach was extremely dangerous.

With no certainty about when the technology will be commercially available, the MPs said, plans to develop new coal-fired power stations would lock the country into a high-emissions future.

Tim Jones, climate policy officer at the World Development Movement, which campaigns against new coal-fired plants, said: "The government should be closing down dirty coal-power stations, not allowing new ones to be built. And the government certainly should not be relying on carbon capture and storage to justify new coal-power stations." Next month's planned climate protest camp will target the Kingsnorth site.

The Royal Society wrote to ministers in April to suggest that new coal-fired power stations were only allowed on the condition that they lose their permit to operate if they failed to capture 90% of carbon dioxide emissions by 2020.

Sir Martin Rees, president of the society, said: "This will give a clear signal to industry and provide the conditions in which the government and industry can work together to take a lead on developing a very valuable technology."

The energy minister, Malcolm Wicks, said he was "pleased" that the environmental audit committee recognised the steps Britain had taken towards developing clean coal technology with the UK carbon capture and storage demonstration project, but insisted that coal was vital for the future.

"We are committed to the development of CCS technology and we intend to be one of the first countries to demonstrate the technology for a coal-fired station on a commercial scale," he said. "Coal is and will remain a vital part of the global energy mix, and this will be the case for many years to come."

Which plants meet EU directives

Plants with sulphur and Nox filters

Drax (Drax Power) 3,960MW; Eggborough (British Energy) 2,000; Cottam (EDF) 2,000; Ferrybridge (SSE) 1,000; Fiddlers Ferry (SSE) 2,000; Ratcliffe (E.ON) 2,000; Rugeley (International Power) 1,000; West Burton (EDF) 2,000; Longannet (Scottish Power) 2,304; Aberthaw (RWE npower) 1,500; Kilroot (AES) 520; Uskmouth (Uskmouth Power) 393. Total 20,677MW

Opted out - due to close by 2015

Ferrybridge (SSE) 1,000; Didcot A (RWE nPower) 2,000; Tilbury (RWE npower) 1,520; Kingsnorth (E.ON) 2,000; Ironbridge (E.ON) 1,000; Cockenzie (Scottish Power) 1,152. Total 8,672MW

A national nuclear laboratory will be established as part of a £2bn regeneration scheme to transform west Cumbria into Britain's "energy coast", John Hutton, the business secretary, announced yesterday. The government-owned centre will be run by a commercial operator and focus on research and development, including more secure and sustainable methods of waste disposal.

The announcement was made as Mr Hutton visited Sellafield to launch a "West Cumbria Masterplan" to create 16,000 jobs and inject £800m into the local economy. The scheme encompasses onshore and offshore wind farms but the government hopes the centrepiece will be a new nuclear reactor at Sellafield. No companies have yet come forward with plans to build a plant.

"It is now clear nuclear power will need to continue to play a crucial role in our low-carbon future," Mr Hutton said. "The creation of the national nuclear laboratory will safeguard the UK's high-tech nuclear expertise, facilities and skills." The NNL will bring together researchers from Nexia Solutions and facilities owned by the Nuclear Decommissioning Authority. A tender process for running the laboratory is expected to take place by spring 2009.

Chaos at the heart of Britain's nuclear clean-up industry has been laid bare by an internal audit undertaken by the Department for Business, Enterprise and Regulatory Reform (DBERR), following embarrassing cost overruns that forced the department to find £400m worth of emergency funds from other budgets to balance the books.

The department admits that there are now "inherent risks" associated with the financial affairs of the Nuclear Decommissioning Authority (NDA) and reveals that budgetary problems were exacerbated by misunderstandings, unminuted meetings and lack of sufficiently trained staff.

In response to earlier criticism from a parliamentary committee about its handling of the NDA, the department revealed that 42% of its budget is already being pumped the authority, which admitted last week its total future clean-up cost estimates were now £10bn higher than 12 months ago, when it put the figure at £73bn.

The job of overseeing the NDA has been moved from DBERR's energy group to its shareholder executive in an attempt to tighten up accounting, while the NDA has sent off its finance staff for retraining at the National School of Government run by the civil service, the report reveals.

The operational failures of the Thorp and Mox fuel recycling plants at Sellafield in Cumbria are known to be largely responsible for wiping millions of pounds worth of expected income off the NDA's budget, leaving it to seek more cash from government.

"The fact that the funding gap anticipated was met in part by using all of DBERR's end year flexibility, illustrates the extent to which the department is vulnerable to movements in the NDA's budget caused in large part by the reliance on volatile commercial income," says the department's report, entitled NDA budgeting shortfall 2007-08 lessons learned, which was quietly slipped out onto a parliamentary website this week.

The document, a response to a business and enterprise committee inquiry into NDA funding, reveals that the NDA and the Treasury were at cross purposes over some aspects of the clean-up agency's budget and decisions taken at a vital meeting as far back as February 2006 were misunderstood. This problems were exacerbated by the lack of proper procedures at those talks.

"There is no formal record of that meeting, nor was there subsequently any correspondence that confirmed what those present believed to have been agreed. To minimise the risk of misunderstandings in the future, all parties have acknowledged the importance of a written record of all material decisions and future actions," argues the report.

It also says that the government is currently looking at whether changes are needed to help the NDA manage its budget more effectively. It admits the "commercial income (from Thorp and Mox) is volatile and over time will decline as sites progressively close and move into the decommissioning phase."

The government has switched money meant to support low carbon and renewable technologies to clean up the waste from Britain's nuclear power stations.

Spending figures released by DBERR in February showed that at least one tranche of money - worth £15m - that was meant to be used on "sustainable energy capital grants" had been switched to the NDA. Ministers also plundered the defence budget as well as cash that should have been used for "regional selective assistance" to bolster an NDA.

The department said some money had been switched in the spring supplementary estimates for 2007-08 but insisted this was a technical matter just to balance the books on paper.

But as recently as two weeks ago there was a damning report from another House of Commons committee - responsible for public accounts - that criticised ministers for providing no certainty over the future cost of decommissioning Britain's existing nuclear sites - estimated at £73bn.

Edward Leigh, chairman of the committee, said: "Estimating costs far into the future is of course a precarious business but elements of cost that might be expected to be more predictable - such as the work expected to be undertaken over three next five years - have risen steeply."

The NDA's budget problems has also caused conflict with the Environment Agency which argued earlier this year that insufficient funds had been made available by ministers for the clean-up of some sites. The NDA was accused of making things worse by deciding to concentrate on especially toxic waste at sites such as Sellafield.

This prioritisation will delay clean-up elsewhere, "prolonging and potentially increasing risk to the environment that they pose and the costs necessary for their maintenance", the Environment Agency argued in a strongly worded response to an NDA's draft business plan covering the years 2008-11.

A follow-up letter from the agency's chief executive, Barbara Young, to her counterpart at the NDA , Ian Roxburgh, talks about stakeholder confidence being endangered by the decommissioning organisation's go-it-alone approach. She accuses the NDA of spurning offers of advice and claims that it has a shortage of environmental skills.

NEW DELHI — The Indian government survived a confidence vote in Parliament on Tuesday evening, paving the way for India to seal a landmark nuclear agreement with the United States. But the entire parliamentary process was tainted by allegations of bribery made on the floor of the house.

Prime Minister Manmohan Singh, who initiated the confidence motion, won 275 votes, while his opponents secured 256 votes, and 11 members abstained. It was a wider margin of victory than politics watchers had predicted, and it came on the heels of two days of acrimonious debate and constant heckling, some of it directed at Mr. Singh, who was unable to finish his closing speech to the legislature.

The significance of the vote goes well beyond the survival of Mr. Singh’s administration, or even the fate of the one policy issue on which he has staked his legacy: an agreement initiated by the Bush administration more than two years ago to allow India access to nuclear fuel and technology on the world market.

After the confidence vote, which Mr. Singh called “a convincing victory,” he told reporters that he hoped it would signal to the world that “India is prepared to take its rightful place in the comity of nations.”

Mr. Singh pushed the deal as vital to India’s acceptance as a nuclear power and essential for the country to meet the energy needs of a growing economy, which has been hampered by dire power shortages.

Not least, the nuclear deal was hailed by his government and the Bush administration as a centerpiece of an effort to deepen a partnership; Mr. Singh’s former supporters in the Communist parties deeply opposed the accord for precisely that reason.

The accord now depends on the approval of the International Atomic Energy Agency and the Nuclear Suppliers Group, and would then go before the United States Congress for a final vote. It has been divisive in Congress as well as an exception to American policies against the spread of nuclear materials.

“We think that we can move forward with this,” Dana M. Perino, the White House press secretary, said, but “there aren’t that many days left where Congress is going to be in session.”

Even after the tortuous road to the nuclear agreement, India’s strategic relationship with the United States remains troubled by several major disagreements, including Indian policy on Iran and Myanmar.

“India may be ‘emerging,’ but it will be a very high-maintenance friend when it comes to any strategic partnership,” Stephen P. Cohen, a senior fellow at the Brookings Institution in Washington, said by e-mail.

In this country, the real impact of Tuesday’s vote will be felt in the coming months, as major and minor parties in India’s deeply fractured political system prepare for the next national elections, which must be held by May. The confidence vote has significantly rearranged old political alliances, sharpened the divide between political adversaries and threatened to intensify public cynicism toward elected leaders.

“The polite veils that are thrown over the workings of democracy have been lifted,” said the political analyst and president of the nonpartisan Center for Policy Research, Pratap Bhanu Mehta. “Politics is going to get really, really ugly.”

The two-day debate in Parliament was at its most rambunctious late Tuesday afternoon. Three lawmakers with the opposition Bharatiya Janata Party, or B.J.P., accused Mr. Singh’s new allies, with a North Indian regional party called Samajwadi, of offering them roughly $750,000 each in exchange for abstaining from the confidence vote.

The allegation was made barely two hours before the scheduled vote. B.J.P. lawmakers stormed the well of Parliament, waving wads of cash and forcing Parliament to adjourn. B.J.P. leaders soon appeared before television cameras to detail the bribery allegations, and Samajwadi leaders went on air to deny the accusations and accuse senior B.J.P. leaders of bribery attempts.

A private television news station, CNN-IBN, said it had acquired what it called a “cash for vote” tape in the course of an investigation into bribery allegations. The station did not broadcast the tape, but said it had handed it over to the speaker of Parliament, Somnath Chatterjee.

Whether any money changed hands, how, and between whom, is not likely to be resolved soon.

Tuesday’s victory in Parliament could allow Mr. Singh’s government to remain in power until next May, when its five-year term expires, but not without serious challenges to its credibility and its political future.

After losing the support of the Communists, the government secured the backing of the Samajwadi Party, an archrival that until recently had been among the loudest anti-American voices in Parliament. It also won support from several smaller parties.

The Communists linked arms with a party they had frequently criticized, led by the most prominent politician from the so-called low-caste Dalits, Kumari Mayawati. Together with the B.J.P., they sought to bring down Mr. Singh’s government.

Mohammed Salim of the Communist Party of India (Marxist) accused the government on Monday of betraying its allies at home for the sake of a partnership with the United States.

The finance minister, Palaniappan Chidambaram, jabbed at the Communists on Tuesday without naming them, suggesting that “some people” supported China’s advance while holding India back. “I want India to become an economic power,” he told Parliament, “an economic superpower.” His comments were met with angry gibes and arm-waving from the Communists.

WASHINGTON - Al Gore, the Nobel Prize-winning crusader on climate change, challenged the United States on Thursday to commit to producing all U.S. electricity from renewable sources like solar and wind power in 10 years.

"Our dangerous over-reliance on carbon-based fuels is at the core of all three of these challenges -- the economic, environmental and national security crises," the former Democratic vice president and presidential candidate in 2000 told a meeting in Washington.

"So today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years," he said.

Gore also took aim at the Bush administration's policies on climate change, without mentioning the president by name. Advocates of tougher measures to combat global warming caused by carbon emissions have long said President George W. Bush has done too little about climate change.

Gore, who faced a smattering of protesters rallying against big government outside the hall, likened the fight against climate change to the successful challenge in the 1960s to send humans to the Moon within the decade.

Gore, who starred in the Academy Award-winning documentary "An Inconvenient Truth" about the perils of global warming, also disparaged goals set too far in the future.

"A political promise to do something 40 years from now is universally ignored because everyone knows it's totally meaningless. Ten years is about the maximum time that we as a nation can hold a steady aim and hit our target."

Bush has opposed economy-wide limits on the emission of climate-warming carbon dioxide. Last week, he and other leaders of the Group of Eight major industrialized nations offered a non-binding pledge to cut emissions 50 percent by 2050 -- 42 years from now.

"WE MUST MOVE FIRST"

The Bush administration and the other rich nations said they could not meet this goal without participation from developing economies like China and India.

Gore, noting that an international climate change treaty is expected to be concluded by the end of the next U.S. president's first year in office, questioned any delay on combating global warming.

"It is a great error to say that the United States must wait for others to join us in this matter," he said. "In fact, we must move first, because that is the key to getting others to follow; and because moving first is in our own national interest."

Democratic presidential candidate Barack Obama said he supported Gore's challenge, and said he would fast-track investments in renewable energy like solar, wind and biofuels if elected. "It's a strategy that will create millions of new jobs that pay well and cannot be outsourced, and one that will leave our children a world that is cleaner and safer," he said.

Obama's rival in the November election, Republican candidate John McCain, also backed Gore's plan. "If the vice president says it's do-able, I believe it's do-able," he told reporters.

Gore said he had had conversations with Obama, McCain, and with Bob Barr, the Libertarian Party candidate.

10 Steps in 10 Years to 100% Renewable Energy

Post Carbon Institute today announced a comprehensive 10-point plan to achieve Vice President Al Gore's goal of 100% renewable energy in 10 years:

1. Reduce 2. Share 3. Diversify 4. Distribute 5. Store 6. Reinvest 7. Relocalize 8. Reengineer 9. Reskill 10. Remobilize

A detailed framework has been released online at postcarbon.org to serve as a guide for policy makers, citizens, and businesses.

"Climate change is the greatest environmental crisis that humanity has ever faced, but it is not the only serious challenge confronting us. There is a simultaneous 'source' problem, known as peak oil, arising from the depletion of the fuels we are burning, particularly petroleum. The solution to both climate change and peak oil is to develop renewable sources of energy, to use less energy, to use energy differently-and to make this shift as rapidly as possible," said Richard Heinberg, Senior Fellow, Post Carbon Institute. "Al Gore's ambitious goal provides a national focus and call to action. Now what's needed is a clear-sighted plan for achieving it, one that recognizes the complex issues of energy depletion, the vulnerability of the supply chain and the limits of technology. We are taking up Gore's call and presenting a powerful framework to realize this vision, a vision that would revitalize America and make it genuinely sustainable."

"Al Gore's Generational Challenge to Repower America, which places energy at the forefront of the national agenda, should be the top issue debated by all candidates this fall," said Debbie Cook, Mayor of Huntington Beach (California), Democratic Candidate for the 46th Congressional District, and Post Carbon Institute Board Member.* "Energy touches almost every critical issue facing our country including the economy, security, and the environment. Gore's courageous and rational plan to move to 100% renewable energy sources in 10 years has my full support. Our 10 point plan provides the stepping stones to achieve this target."

Julian Darley, President of Post Carbon Institute said, "We thank Al Gore for articulating the most urgent action needed to safeguard America's environmental, economic, and societal future, and that of the entire world. Our mission is to get society off of fossil fuels fast and we embrace the need to move to 100% renewable energy with this plan."

Post Carbon Institute, headquartered in Sebastopol, California, conducts research, develops technical tools, educates the public, and informs leaders to help communities around the world understand and respond to the challenges of peak oil and climate change.

BAA, the operator of Heathrow, used the low emissions figures of a non-existent green jumbo to help clinch the environmental case for a third runway.

The twin-engine 450-seat “virtual” jet was invented for the environmental modelling required in the government consultation after BAA realised it would otherwise exceed the limit for noise and pollution.

According to BAA submissions, the green jumbo will account for more flights out of Heathrow by 2030 than four-engined giants such as the double-decker A380, or the new generation of Boeing 747s. It promises to be the world’s quietest and cleanest jumbo.

There is just one snag: Airbus and Boeing, the world’s biggest aircraft makers, have no intention of building it.

“Nothing like this is on the drawing board,” said one senior industry source. “I don’t think it’s feasible because the size of engines that would be required for this plane to safely take off don’t exist and aren’t under development.”

New evidence of the flawed consultation, to be shown on BBC’s Panorama tomorrow, will increase pressure on the government to review its plans for Heathrow’s expansion. Ministers have already delayed the decision after a backlash against proposals to permit an extra 220,000 flights a year.

The government has been accused of acting “like a subsidiary of BAA” over its plans for Heathrow. John Hutton, the business secretary, signalled last week that Heathrow growth was likely to be approved when he pledged the government was ready to take “difficult decisions on airport expansion”.

The Sunday Times revealed in March how BAA collaborated with the Department for Transport (DfT) on the official consultation and repeatedly altered the data to get the required result. It has now emerged that one of the big concerns was that four-engine jets would cause a disproportionate amount of noise and pollution if a third runway was built.

BAA initially predicted that 20% of planes taking off from Heathrow by 2030 would be four-engine jets. It subsequently cut that to 11% and then to 6%.

BAA’s “virtual” plane was quietly inserted into the evidence to reduce the number of long-haul four-engine aircraft. The research was used by Ruth Kelly, the transport secretary, to demonstrate how Heathrow could be expanded without causing more noise or pollution.

Documents obtained by The Sunday Times under freedom of information laws show DfT officials were sceptical. Last September, days before the results were to be signed off by ministers, e-mails show officials were alarmed that BAA’s predictions for a cleaner, quieter fleet might be too optimistic and would be challenged.

BAA responded that it could use “rules of thumb” for a quick fresh forecast, but there was not enough time to produce robust research for publication.

It appears officials were left with no option but to use the airport operator’s data and the green superjumbo.

BAA said last week its new jet was a realistic prediction. It said if such a plane was not built the number of flights using Heathrow could be reduced to ensure environmental limits were not breached.

Opponents of expansion say it is another example of how the consultation was fixed. “This is an invented plane that experts say won’t be built,” said Justine Greening, the Conservative MP who has campaigned against the airport’s expansion. “There is a point at which a biased process became a bogus process.”

The DfT said the green jumbo was intended only as an “illustrative example”.

British businesses could save themselves £2.5bn over the next 12 months if they implemented energy efficiency schemes that would also cut 22m tonnes of carbon from the atmosphere, according to new analysis out today amid soaring oil and gas bills plus fears of recession.

The £7m a day of savings - the equivalent of 100,000 staff salaries - have been calculated by researchers working for the government-sponsored Carbon Trust which says companies are finally waking up to energy efficiency as a way of dealing with rising energy prices - and global warming.

"Our new statistics provide stark evidence that if companies are starting to feel the bite from the economic downturn, the first place to look for cost savings should be their energy bill. There are literally millions of pounds going out of the window every day, across the UK," said Hugh Jones, a director at the Carbon Trust.

"Our research shows that energy efficiency measures, not job cuts or salary freezes, are the cost-cutting steps businesses are considering first during this economically challenging time. It's an encouraging sign that wise companies are realising that cutting carbon and being green is the easiest way to make a business lean," he adds.

The Carbon Trust points out that energy and therefore financial savings can be easy to obtain through simple steps such as encouraging staff to switch off computers and lights, turning down the heating or maintaining equipment properly.

Oil prices have hit record levels in recent months pushing up the cost of wholesale gas. New research released last week by Centrica, the owner of British Gas, warned that family gas and electricity bills combined could soon hit £1,400 a year.

Meanwhile the Carbon Trust reports that over a third of business leaders surveyed who have carbon reduction targets say the issue is rising up their agenda, compared to just 9% who say it is going down. This is in contrast to bosses who have no targets and are not planning on putting any in place. Only 8% say it is rising up their agenda – suggesting they are yet to realise the potential cost savings available through carbon reduction measures.

Families taking part in a greener living experiment have made big cuts in their carbon footprint.

They managed to reduce their energy use by 30 per cent and CO2 emissions by 20 per cent.

Organisers of the Green Streets challenge say if all UK households did the same the UK could save £4.6bn on energy bills.

Green Streets, a year-long social experiment in energy saving, is organised by British Gas and monitored by the think-tank Institute of Public Policy Research (IPPR), and involves 64 families in eight different cities.

Interim results based on the first five months of the Challenge reveal the best performing households managed to achieve savings on gas of more than 50 per cent.

Families who live in the Green Streets - a mix of British Gas customers and other energy suppliers - were given a budget of £30,000 per street to spend on energy efficiency measures, with advice from British Gas energy experts.

The street which produces the best energy and CO2 savings figures over a year will win £50,000 to spend on making a community building more energy efficient.

advertisementThe savings they have produced so far are a result of installing energy efficient technology such as better insulation, solar panels and modern boilers working alongside simple energy saving behavioural changes.

British Gas and ippr claim the success of the experiment points the way to how the UK can reach the legally-binding government target of reducing CO2 emissions by 20 per cent on 1990 levels by 2010.

Analysis of the results so far found:

The highly-motivated households almost halved their energy use;
Expert advice on energy efficiency helped lead to sustained interest and behaviour change;
Behavioural change can be as important as new equipment - one London household reduced its gas use by 45 per cent by installing loft insulation and thermostatic heating controls;
Green Streets produced better community spirit and neighbourliness, bringing together neighbours who hadn't met before and creating both peer pressure and support to maintain energy efficient behaviour.

The success of the Challenge has led to organisers making three specific recommendations:

1. The adoption and extension of neighbourhood energy advisers scheme with one adviser for every 20 streets. IPPR say 10,000 advisers would cost £500m per year but would produce potential savings of £4.6bn.

2. The creation of new green mortgage packages by banks and energy companies to pay for the installation of energy saving technology. A £524 package for cavity wall and loft insulation, paid for under a 7 per cent APR finance package on a three year loan, would pay for itself within the three years and generate a £395 return on the investment every year after that.

3. Communities rather than individual households should be offered incentives to change their behaviour possibly through a £4m annual national energy saving prize-fund.

A clear policy framework and Government funding would be needed to underpin the recommendations and providing regulation and incentives for energy companies to invest in making them happen.

The report's author Matthew Lockwood, Senior Fellow in the Climate Team at the IPPR, said: "If the UK is to meet its target of reducing CO2 emissions by 20 per cent from 1990 to 2010, and by 60 per cent by 2050, radical new approaches to public policy will be needed.

"We need to recognise that three in four of the homes we will live in by 2050 have already been built. If we want householders to make up front investments in energy efficiency equipment that will curb bills and emissions for years to come, we will need creative approaches to financing the installation of energy efficiency measures in our homes."

Phil Bentley, managing director, British Gas, said: "The UK now buys energy on the world market and competes toe to toe with countries prepared to pay higher prices than we've seen before. Reducing energy consumption is the single most important thing households can do to reduce bills and cut emissions.

"With our advice and assistance, Green Streets households have saved up to 30 per cent on their energy use in just five months. The challenge for everyone is to see if they can do the same, and this report shows what we can all achieve."

Streets participating in 'Green Streets'

A representative cross section of residents (including British Gas and non-British Gas customers) from each of the following streets have been participating in British Gas' Green Streets challenge:

Greenend Road, Chiswick, London W4
Green Street, Middleton, Greater Manchester M24
Green Lane, Great Barr, Birmingham B43
Green Lane, Southampton, S031
Green Lane, Leeds, LS16
Colinton Mains Green, Edinburgh, E13
Green Park Road, Plymouth, PL9
Greenway Road, Cardiff, CF31

Gordon Brown is to launch the biggest revolution in the way Britons drive since the development of the internal combustion engine. He will meet manufacturers this week to try to persuade them to mass-produce electric cars, and is considering a remarkable plan to sell the cars cheap, together with their fuel, that is modelled on mobile-phone contracts.

The scheme, which has already been taken up by Israel and Denmark, would sell heavily subsidised vehicles – or even give them away – in return for contracts to buy the electricity to charge them. Its inventor, a Silicon Valley software entrepreneur, believes it will at least halve the cost of motoring while dramatically reducing one of the main sources of the pollution that causes global warming.

The Prime Minister – who will reveal some of his thinking at the Motor Show this week – wants all new cars sold in Britain to be electric or hybrid vehicles by 2020, and is trying to enlist leaders of the motor industry because he wants "to see those cars manufactured in Britain".

He also wants to "incentivise" the rapid changeover to electric vehicles in Britain, and so is studying the mould-breaking scheme being promoted by the 38-year-old entrepreneur, Shai Agassi, backed by $200m (£100m) of venture capital. Under the scheme – the most advanced of several proposals the Government is considering – motorists would be provided with cars just as mobile-phone customers now get their handsets. In return, they would take out a contract for a maximum number of miles.

The contract would entitle them to receive the electricity, either by plugging into any one of hundreds of thousands of recharge points across the country, or by exchanging flat batteries for fully charged ones. At present, the cars' range is likely to be only about 100 miles between recharges, which would take about two hours, so, on longer journeys, motorists would pop into filling stations for a three-minute battery exchange.

However, the plan will only help to fight climate change if the electricity comes not from fossil fuels, but from nuclear or renewable energy.

Two of America's largest car manufacturers are furthering their ability to cope with the high price of oil - with plans to work with electricity and with smaller cars.

GM, whose first electric car, the Chevy Volt, is due to roll off the production line in 2010, is working with more than 30 power companies across the US to study the implications of a mass fleet of electric cars on the roads.

Ford, which has focused on 4x4s and pick-up trucks, is set to shift its focus to smaller cars to win a larger share of an overall declining market.

The companies - number one (GM) and number three (Ford) in the US respectively - are taking the measures as part of a wider restructuring to return to profitability amid higher commodity costs and lower demand.

GM is working with some of America's largest utilities to understand the issues that will surface when the Chevy Volt is unveiled in late 2010. The car will run on an electric motor powered by lithium-ion batteries, which can travel 40 miles when fully charged.

The new group will study if local grids can handle the increased power demand, and if tax incentives might be given for buying what is likely to be an expensive vehicle.

The group includes all power companies covering 40 states, as well as non-utilities such as the Electric Vehicle Research Institute.

Ford is expected to announce a shift to smaller vehicles, converting up to three of its large North American assembly plants from making larger vehicles to smaller cars.

The announcement, set to come with Ford's quarterly earnings, will see compact cars such as the Ford Fiesta made in the US for the first time.

The compact version of the Focus - only in saloon form in the US - is likely to make the transatlantic move.

Six of its European models are expected to now begin production in the US, with a focus on models with medium-high fuel efficiency.

Ford is expected to put its smaller Mercury marque at the heart of its new strategy.