The government is expected to be forced into a renewed standoff with the House of Lords over David Cameron’s reversal on green energy subsidies.

After a series of constitutional rows, the tensions between the government and the upper chamber will reach a new flashpoint as the energy secretary, Amber Rudd, presses ahead with a scheme to end subsidies for new onshore windfarms.

The plan, contained in the energy bill, was rejected by peers last year, when an alliance of Labour, Liberal Democrat and crossbench peers took on the government over the proposed closure of the Renewable Obligation subsidy scheme.

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Despite being urged by the revising chamber to look again at the proposal, the Observer understands that the government will this week reinsert the excised clause into the bill, which will be debated for the first time in the Commons on Monday. Senior Labour Lords confirmed that if the government succeeds in restoring the legislation to its original form in the Commons, the party will seek to strike out the clause in the Lords again.

The government is unable to invoke the Parliament Act, whereby legislation can be passed without the consent of the House of Lords, because the bill started life in the upper chamber. Rudd may therefore be faced with a choice of backing down or pursuing another fight with the House of Lords, whose non-Conservative majority forced George Osborne to scrap planned tax credits cuts last year and is expected to disrupt the impending trade union bill and the housing bill.

The prime minister vowed in 2010 that he would lead the “greenest government ever”, but has since rowed back from green policies over the course of his first term, under pressure from his campaign chief, Sir Lynton Crosby.

In June, the government announced that it intended to end subsidies for onshore windfarms at the start of April, rather than in 2017, as had been planned by the coalition government. The subsidies are funded by the Renewables Obligation, a scheme which requires energy companies to source some of their energy from renewable sources. It is funded by levies added to household fuel bills, rather than government expenditure.

The environment secretary insists that the measure will reduce household bills, but critics argue that because onshore wind is the cheapest low-carbon electricity, bills will go up unless windfarms are to be replaced by high-carbon electricity such as gas or coal. In 2013, the total cost to the average household of the Renewables Obligation scheme, which covers other renewable energy sources as well as wind, was just £30 a year, or 2.4% of the average fuel bill. According to the DECC’s own impact assessment, the proposed change will only save consumers an extra 30p a year.

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Before the anticipated showdown between the government and the Lords, Labour will use the Commons debate on the energy bill this week to open up a second front in the battle against the prime minister’s retreat from green policies.

The Observer understands that Labour will this week urge the government to produce new plans for carbon capture and storage. The government abruptly axed its £1bn CCS programme last November – despite Cameron repeatedly praising the process – which deposits waste carbon dioxide where it will not enter the atmosphere.

In 2007, when leader of the opposition, Cameron said that CCS “could increase our energy security and help tackle climate change at the same time”. He said: “All existing coal-fired power stations should be retro-fitted with CCS, and all future coal-fired power stations should be built with CCS.”

At the 2014 UN climate summit, just 14 months before he scrapped the scheme, Cameron told world leaders that the £1bn had already been invested. When questioned at PMQs in December about the end of the scheme, Cameron said: “In government you have to make tough choices: you have to make decisions about technology that works and technology that isn’t working.” Last week, the US energy secretary, Ernest Moniz, tweeted:

Ernest Moniz (@ErnestMoniz) Carbon capture is critical for solving #ClimateChange. And it's working. #CCUS https://t.co/SRFZ0KLHQk

Labour will table an amendment to the energy bill this week requiring the energy secretary “to develop, promote and implement a comprehensive national strategy for CCS to deliver the emissions reductions required” by June 2016, that is “sufficient to build confidence for private investment in the CCS industry”.

Labour will also question the cost to the taxpayer of the government’s scrapping the scheme. The Observer can reveal that earlier this week Lisa Nandy, the shadow energy secretary, wrote to Sir Amyas Morse, the comptroller and auditor general at the National Audit Office, requesting that the NAO runs “a fresh investigation into the Treasury’s whole approach to the government’s CCS programme”. The Observer has been told that at least one of the companies that has invested in CCS in the UK is negotiating compensation from the government and may sue, which could result in the government paying out tens of millions of pounds.

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Nandy wrote, “in exasperation”, that after the NAO criticised the manner of the government’s cancellation of a separate CCS programme in 2011, “it appears that the chancellor has not learned the lessons [and] has not followed the advice the NAO gave him”. Nandy also stated that “the Labour Party considers that CCS is a crucial technology that could play a vital role in creating and sustaining jobs and businesses across Britain, as well as helping our country – and the international community – progress towards climate safety”.

Though the wind industry has rowed back from threats of legal action aired when the changes to the subsidy regime were first mooted, wind companies expressed their anger over the early end to the subsidy. Gordon Edge, director of policy at trade body Renewable UK, said: “It is a mistake to close the Renewables Obligation prematurely, but the government seems determined to press ahead with this policy change regardless. Further evidence is stacking up that onshore wind makes sense for consumers. onshore wind is one of the cheapest ways to generate electricity from any source, including fossil fuels, and it enjoys massive public support, so it has a big part to play in a competitive, low-carbon market.”

Gordon MacDougall, the managing director of RES Group, said on behalf of the British Wind partnership: “Onshore wind projects with community support are a ready and reliable way to provide a cheap, secure, home-grown energy. In tackling climate change the chancellor is on record as saying that we should do it in the cheapest way possible and we should not be ‘too theological about which technology we use’. All we are asking is that the government abides by this principle.”

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Caroline Lucas, the Green MP for Brighton Pavilion, has tabled a reasoned amendment to the energy bill, urging the scrapping of the entire legislation. Lucas told the Observer: “The way in which the government is treating the renewables sector is cavalier, reckless and irresponsible. Even in narrow economic terms they are undermining jobs and investment, and many investors are simply saying they can’t take the risk of investing in UK energy any more because they don’t know what the rules are going to be from one year to the next.”

The Liberal Democrats have also indicated that they will continue to fight the legislation, in both chambers. Lynne Featherstone, the party’s energy spokeswoman, said: “Liberal Democrats have made changes to the government’s energy bill in the House of Lords, and will be fighting to protect onshore wind subsidies in the debate on Monday. We will be fighting to keep these changes, which will help protect our renewable energy industry in the face of Conservative cuts. Now they are in government alone the Tories have reverted to type and have shown they have no commitment to green energy to help tackling climate change to protect our world for future generations. Britain risks falling behind other countries as the government pursues ideological cuts.”

A spokesperson for the Department of Energy and Climate Change said: “Our priority is providing secure, clean and affordable energy for hardworking families and businesses. We want to protect bill payers, ensuring technologies stand on their own two feet whilst also meeting our renewable energy commitments.”