Britain's environmental movement was yesterday presented with its starkest choice yet: whether or not to support the world's largest-ever renewable energy project which will result in unprecedented ecological damage to one of our most important natural habitats.

The giant £20bn Severn barrage, which would stretch 10 miles from Lavernock Point near Cardiff to Brean Down near Weston-super-Mare, would harness the tides to generate up to 5 per cent of the UK's electricity needs – the equivalent of eight typical coal-fired power stations. This is crucially important in the fight against climate change.

But environmentalists fear that by blocking the Severn estuary completely, the barrage would destroy vast areas of mudflats and mashes, which are vital feeding grounds for tens of thousands of wading birds, and prevent migratory fish such as salmon and eels from ascending rivers to spawn. Other environmentalists think such a large project would divert resources away from other key renewable technologies such as wind power.

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Yesterday the barrage appeared on a shortlist of five renewable energy schemes for the Severn estuary indicating that the project, which the Government is known to favour, is moving closer to formal acceptance. The shortlist will now be the subject of a public consultation and a final decision will be taken by 2010.

But the proposal is causing real difficulties for Britain's green movement, whose members are united in the need to take action against global warming, yet view with deep dismay the unprecedented ecological damage a Severn barrage would undoubtedly bring about. The dilemma could not be more acute: on the one hand, the prospect of more renewable energy from one place than is currently produced in the entire UK; on the other, the virtual wiping out of one of Britain's most important wildlife sites. The dilemma will only increase as the imperative of countering climate change with major developments runs up against the damage to the natural world which such large-scale schemes may cause.

The Government's official green advisers, the Sustainable Development Commission, thinks the barrage should be built if it can pass two tests: that new wildlife habitats can be created to compensate for those lost and that the project remains in public ownership. The SDC favours it because with the Severn having the second highest tidal range in the world – the difference between high and low tides can be as much as 45ft – the energy-producing potential of a barrage is enormous, capable of generating more than eight gigawatts of power.

However, Friends of the Earth believe it would simply be too damaging and divert too much money that could be better spent fighting climate change in other ways. Greenpeace agrees it has potential but thinks the Government should give priority to wind power. The Royal Society for the Protection of Birds, the Wildlife Trusts and the Government's own wildlife watchdog, Natural England, are all concerned over the impact on wildlife.

"It is hugely disappointing to see the Government still pushing forward with the environmentally destructive option of a Cardiff-Weston barrage," said Martin Harper, the RSPB's head of sustainable development.

"Climate change threatens an environmental catastrophe for humans and wildlife and we urgently need to find low and zero carbon alternatives to our insatiable appetite for fossil fuels, so harnessing the huge tidal power of the Severn has to be right. But it cannot be right to trash the natural environment in the process. The final scheme must be the one that generates as much clean energy as possible while minimising harm to the estuary and its wildlife. We know the Cardiff-Weston Barrage would destroy huge areas of estuary marsh and mudflats used by 69,000 birds each winter and block the migration routes of countless fish."

Natural England's chief executive Helen Phillips said yesterday: "Tackling climate change requires us to make a step change in the way we think about renewable energy but we have to ensure that the decisions we make stand the test of time and do not leave a legacy of environmental destruction in their wake."

There is little doubt that a barrage would destroy more wildlife habitat than any other British construction project in modern times. The Severn Estuary, where the celebrated naturalist Sir Peter Scott founded Slimbridge, the wildfowl refuge which became one of the world's most famous nature reserves, provides an 86,000-acre feeding ground for wild swans, geese and many thousands of wading birds, such as dunlin, turnstone, oystercatcher and ringed plover, from all over Europe.

Under EU wildlife habitat laws, if the Government were to go ahead, it would have to find alternative compensatory habitat – mudflats and marshes – which might be as much as 40,000 acres, and which might cost anything up to £3bn.

But that is unlikely to hold the Government back, such will be the temptation to grab that massive 5 per cent renewable energy boost from a barrage – for in December ministers took on the enormous obligation, in an EU-wide deal, of sourcing 20 per cent of total UK energy demand from renewables by 2020. Twenty per cent of total energy (which includes heating and transport) means finding about 40 per cent of electricity from renewables – nearly 10 times the current figure of about 4.5 per cent.

The Herculean size of that task means the Government is very likely to go for the barrage, especially as the onshore wind industry is suffering strongly from the rise in the euro against the pound, meaning turbines made in Germany and Denmark are now about a third dearer than they were a year ago.

Apart from the main barrage, four other shortlisted schemes were announced by the Secretary of State for Energy and Climate Change, David Miliband, yesterday. They are: Shoots barrage, further upstream which would generate around 1GW; Beachley barrage, an even smaller scheme just above the river Wye, which would generate around 625MW; Bridgwater Bay lagoon, a proposal which would impound a section of the estuary on the coast from east of Hinkley Point to Weston-super-Mare, which could generate 1.36GW and Fleming lagoon, a similar scheme which would generate the same amount of power from a section of the Welsh shore between Newport and the Severn road crossings.

Mr Miliband acknowledged fighting climate change involved "tough choices" and said: "The five schemes shortlisted are what we believe can be feasible but this doesn't mean we have lost sight of others. Half a million pounds of new funding will go some way to developing technologies still in their infancy, like tidal reefs and fences. We will consider the progress of this work before any final decisions are taken."

Is it the right decision to build the barrage?

Andrew Lee: Yes

Climate science is telling us that we will have to reduce our carbon emissions to near zero by 2050, if the rest of the world is to have any chance to develop at all, so we must take all options for Severn tidal power very seriously indeed. In our report Turning the Tide, the SDC felt that a Cardiff-Weston barrage could be sustainable if it passed two tough tests. The first is EU law: breaching the habitats and birds directives would set a dangerous precedent. The second is the public interest – we said that any scheme must be publicly managed and owned. The barrage is a player for 2050, as are the newly emerging tidal fence and tidal reef technologies which might have less environmental impact. Ironically, a smaller scheme could also have significant environmental impact, while being too small to help much in the energy mix and hived off entirely to the private sector to boot.

Andrew Lee is chief executive of the Sustainable Development Commission

Gordon James: No

For the amount of energy produced, a Severn barrage would be too damaging to the ecological features and species of international importance in the estuary – even given that climate change and sea-level rise would be gradually affecting habitats. At a cost of around £15bn it would be uneconomic, and public funds for "climate mitigation" projects could be better spent generating more energy in a shorter period of time from alternative renewable and or low-carbon schemes. The barrage would preclude the building of large tidal lagoon impoundments and other tidal schemes in the Severn estuary from Bridgwater Bay eastwards, which may amount to considerable electricity and storage potential, and it would generate large amounts of electricity in two pulses of around four hours each day,which would not necessarily match high demand, and create problems for the national grid.

Gordon James is a director of Friends of the Earth Cymru