By Roger Harrabin

BBC environment analyst



The government's measures were tougher than expected

That will mean the UK will achieve almost double its targets under the Kyoto Protocol, and bring it closer to its self-imposed target of a 20% cut in CO2 by 2010.

The surprise announcement comes the day after the French and German governments announced comparatively lax targets. Based on last year's figures, the Germans will cut emissions by just 0.6%.

The UK Environment Minister David Miliband said he had already spoken to the European Commission to make sure that EU neighbours imposed the strictest possible cuts.

Tony Blair has taken flak recently for failing to match his international rhetoric on climate change with tough emissions cuts in the UK.

He is also concerned that the Conservative leader David Cameron has taken a clear lead in the polls on green issues. Today's announcement is expected to regain some of the government's credibility on domestic climate policy.

Energy Review

The brunt of the emissions cuts will fall on electricity generators. They are shielded from international competition. Exporting industries will be allowed to emit as much carbon as they need.

The green group WWF called the policy a missed opportunity to put CO2 emissions back on track for the government's promised 20% cut. The new policy will bring CO2 down by 16.2% by 2010.

Ministers said more measures would be announced in the forthcoming Energy Review.

Today's announcement is expected by the government to increase electricity prices by 0.5% for domestic users (much less than the fluctuations following recent oil prices) and 1.0% for industry.

The business lobby group Confederation of British Industry (CBI) said it risked Britain's competitiveness.

But in this negotiation they appear to have been trumped by a group of business leaders brought together by Prince Charles.

They told the Prime Minister that tough carbon cuts would create jobs in a new low-carbon economy.

Greener than expected

A few months ago ministers said they would cut carbon at a level between three and eight million tonnes.

Today they announced that they have settled at the greenest end of that range - eight million tonnes.

It is not quite as big as it sounds because of recent changes in the sums. But it is still bigger than most observers expected.

The cut was welcomed by the chairman of Shell UK, James Smith, one of the business leaders who went to meet Mr Blair.

The Conservatives broadly welcomed the policy, but the Liberal Democrats said it did not go far enough.

The government also announced the formation of a new low-carbon technology fund. Mr Miliband said it would include new money.

Under the new business-emissions cap, power firms will have to bid at auction for 7% of their emissions credits.

This could raise £150 million at current levels, but Mr Miliband would not promise it would swell the fund - this decision would be made by the Chancellor.

The UK's technology investment is very low compared with its European neighbours.