Climate change secretary Chris Huhne is fighting to defend his department's funding and independence, fending off a suggestion that his civil servants should be moved to the Treasury to cut costs.

Huhne is having to resist the Treasury on numerous policy fronts. He has rejected the relocation idea, fearing his department's civil servants would "go native" if they moved into offices in the Treasury.

The Department of Energy and Climate Change (Decc) was created in 2008 by combining responsibilities which had been part of the previous business and environment departments. The move was praised at the time as an attempt to connect two areas of policy that had sometimes acted in competition.

But when all government departments were asked to model the effect of 40% cuts over the summer, officials at Decc told ministers that cuts of that level to its £3.2bn budget would make it unable to stand alone as a viable entity. At that time it was suggested it merge with the business department, but that was never formally suggested to the Treasury. Instead the Treasury renewed a push to get Decc relocated.

Decc and the Treasury would not be the only ministries sharing. The permanent secretary at the department for culture, media and sport is making plans to move in to the department for international development.

The news came today as Huhne gave his speech to the Liberal Democrat conference. His pitch was that the government wanted to foster a "third industrial revolution" in low-carbon technology. But the techno-optimism of the speech sat awkwardly with the news that he has been forced to contemplate breaking up his department.

Observers are concerned about the relationship between Decc and the Treasury in the run-up to the forthcoming spending review, which will decide all departments' funding for the next five years.

Within a reduced budget, the climate change secretary is pushing to secure money for a green investment bank and the four carbon capture and storage (CCS) demonstrations to pioneer cleaner coal power stations, brought in by the former climate change secretary, Ed Miliband. Senior civil servants at Decc say the Treasury does not want to provide the upfront costs of the demonstrations, known as CCS4. Senior sources concede the money for CCS4 was in jeopardy but insist that it is now safe.

The bank is a coalition pledge to create an institution supporting the development of low-carbon technologies. Huhne is in negotiations with the economic secretary to the Treasury, Justine Greening, and business secretary, Vince Cable, and their officials over whether the bank would be able to lend money – which Huhne believes to be vital – and the level of public money the Treasury will put into it.

The former chancellor Alistair Darling pledged £1bn raised from sales of assets such as the Channel tunnel rail link; it is not known whether Huhne will be able to secure that scale of funding. But in July a senior Treasury official, Andy Rose, was quoted as saying that funding the bank through asset sales was "not on the agenda of the current government". Lib Dem party managers are keen that the party should have something to announce in the autumn, but say they may not have anything to report in the comprehensive spending review.

Before the spending review, officials say Huhne is under pressure to settle quickly with the chief secretary to the Treasury. Cable is not expected to resolve his funding negotiations until the last minute. The chief secretary, Danny Alexander, is keen to avoid the last cabinet ministers to agree their future funding pots being two Lib Dems.

The coalition has stated it will be the "greenest government in history", and Huhne has told MPs that the department is fostering a "third industrial revolution".

Ed Miliband, who is now standing for the Labour leadership, said that any merger of his former department would be a "backwards step"and urged Huhne to stand up to the Treasury. "The very fact that the government is considering the abolition of Decc blows a hole in their claim to be the greenest government ever," said Miliband. "We had cross-party support when we set up Decc but the commitment of the Tories and the Lib Dems appears to be as flimsy as their green policies. Whether they abolish Decc or not we now know the truth about David Cameron's green credentials."

Michael Jacobs, Gordon Brown's special adviser on climate change, said that severe cuts would severely impair the government's ability to deliver on its climate change commitments. "The department is effectively in charge of hundreds of billions of pounds worth of private sector investments. There is a lot of detailed implementation and coordination to get right, and that inevitably takes people and resources."

The Green party leader, Caroline Lucas, said that climate change should take priority over cuts.

"Nobody who understands the urgency and the seriousness of the climate crisis could even contemplate decimating the department that leads the effort to deal with it," she said.

John Sauven the head of Greenpeace called the proposal "sheer insanity". "I think it would now be inconceivable for the government to back down after promising so much only a couple of months ago."

The department has already had its budget cut by £85m this year, and when addressing MPs on the energy and climate change select committee last week, Huhne said the Treasury cost-cutting process was stacked against Decc because of its short history.

"It is never easy for a department like Decc to make cuts because we are so new, and that leads to all sorts of issues – not least the fact that the baseline that the Treasury is using for the public expenditure review is a baseline which was set when we didn't exist," he said.

Another issue is that just over half (£1.7bn) of its budget is spent on nuclear decommissioning, something that Huhne referred to as "dead money".