Alistair Darling will try to repel a Tory offensive on the economy by announcing higher green taxes in his first Budget next spring.
Mr Darling, who has had a baptism of fire since moving to the Treasury in June, will promise to be a "green" Chancellor in a speech today. It will be seen as an attempt to trump David Cameron, who has made the environment a priority in order to show voters that his party is changing.
Yesterday the Tory leader stepped up his efforts to dent Labour's economic credentials by calling for special help for 1.4 million families facing a "cliff edge" because their mortgage payments are set to rise substantially. At a meeting with mortgage lenders, he urged them to help borrowers on fixed-rate deals that are coming to an end and whose monthly payments could rise by an average of 200.
Mr Cameron said: "With house repossessions already rising rapidly, this could unfortunately be the final straw for many borrowers." He suggested that banks and building societies provide a gradual rise in payments rather than a sudden increase.
But the Council of Mortgage Lenders said: "Any proposals to artificially dampen down interest rates for mortgage borrowers must take account of the realistic cost of funds, and are inappropriate in a UK context where most borrowers are coping with their payments and where the market can now have more confidence that rates are past their peak."
Mr Darling will launch a fightback today after being put on the defensive by the Northern Rock crisis, the loss of personal data on 25 million people by HM Revenue & Customs, and claims that he "stole" Tory plans to cut inheritance tax.
Addressing a conference on green issues, the Chancellor will say: "Sustainability will be at the heart of the next Budget. This is not an optional extra. It is essential for all our futures."
Mr Darling will add: "We cannot let short-term costs stop us acting now. And as Chancellor, we will not have a Treasury that only sees the cost of acting, but a Treasury that sees the cost in not acting."
He will say the Government is creating what amounts to a parallel currency and a parallel budget for carbon that will be managed by the Treasury alongside revenue and spending.
Mr Darling will say: "We must live within our new carbon budgets for the health of the wider world; and play our role in avoiding the threat of catastrophic climate change."