The Government will provide £1 billion in funding for a green investment bank, as part of efforts to make the UK a leader in the low-carbon economy, the Chancellor George Osborne said today.
He also said up to £1 billion funding would go towards building one of the first power stations in the world with technology to capture and permanently store carbon emissions, to help cut greenhouse gases from electricity generation.
The announcement of the cash for carbon capture and storage (CCS) technology came just hours after energy giant E.ON announced it was pulling out of the competition for the funding - leaving just one shortlisted candidate, ScottishPower.
The Department of Energy and Climate Change confirmed there would be a second round of CCS projects, with up to four more schemes given the go-ahead, although funding mechanisms had yet to be decided.
And £200 million would go to developing offshore wind technology and manufacturing, and support the upgrade of ports to support the industry.
Setting out green measures in the comprehensive spending review, Mr Osborne said it was necessary when money was tight to "ruthlessly prioritise" areas of the economy which would support economic growth, including low-carbon infrastructure.
He joked that yesterday protesters had scaled the Treasury urging ministers to go ahead with the Green Investment Bank - the first time anyone had protested in favour of a bank.
He confirmed the new bank would would go ahead, with £1 billion funding in the spending review - but he hoped much more would be raised by private sector investment and the future sale of government assets.
It is hoped the bank will fund clean energy and low carbon projects, leveraging billions of pounds in private finance.
Businesses and green groups have warned that some £4 billion to £6 billion is needed over the first four years of the green investment bank, from a combination of public and private sources, to ensure it has enough capital to do its job.
John Sauven, chief executive of Greenpeace, whose protesters climbed up the Treasury yesterday to protest over the bank, said: "Billions of pounds for such a bank could provide thousands of new jobs and make Britain a world leader in cutting-edge low-carbon technologies.
"But the green bank has to be a bank. A poorly financed fund is not a green bank. It doesn't have the financial clout, or the independence to do the job, and will end up as nothing more than an ill-equipped quango.
"So if this government wants to live up to its own billing as the greenest ever, this bank must be independent and properly financed.
"Anything less will dash hopes of a new green economy for Britain, and our chances of tackling climate change and energy security."
Despite fears over the future of green subsidy schemes in the spending review, the feed-in tariff which pays people for small scale green electricity generation is set to remain as it is until an already planned review in two years' time.
The proposed renewable heat incentive will also go ahead, although plans to pay for the scheme, which aims to boost green heating technology, through a levy on bills have been ditched as being "overly complex".
Instead some £860 million of funding aims to drive a ten-fold increase in renewable heat over the next decade.
Energy Secretary Chris Huhne said: "Like the rest of the public sector we have taken some tough decisions but we remain on course to deliver on our promise to be the greenest government ever.
"We will help create green jobs and green growth - and secure the low carbon investment we need to keep the lights on."
The Renewable Energy Association's chief executive Gaynor Hartnell said the announcement on renewable heat was a "big breakthrough" that would put green technologies at the heart of UK energy policy.
"Companies throughout the UK are poised to deliver on renewable heat, creating tens of thousands of green jobs over the coming decade.
"While the announcements today are tough in many areas, there is a good news story here to celebrate - the coalition Government is putting its money where its mouth is.
"We need to see the details but it looks like they're serious about supporting massive growth and employment in the UK's renewable energy sector.
"Once in place, the RHI will enable individuals, businesses and communities to choose renewable heat and take direct control of both their carbon footprint and their energy bills."
Country Land and Business Association (CLA) president William Worsley said: "The proposals for a renewable heat incentive (RCI) as set out in the Comprehensive Spending Review are really good news for commercial and domestic producers and consumers.
"Heat accounts for half of UK carbon emissions, and saving carbon through renewable heat is far cheaper than through the generation of renewable electricity.
"The RHI will transform the wood fuel market, resulting in better management for Britain's woodlands and helping to create and manage wildlife effectively," he added.
On the confirmation that the Government would provide up to £1 billion funding for the first carbon capture and storage (CCS) plant, ScottishPower - the only company left in the running for the cash - said it would help the UK to make the most of its leadership position in developing a crucial low-carbon technology.
A spokesman said: "The ScottishPower consortium remains committed to the carbon capture and storage project at Longannet, and we are on schedule with our front-end engineering and design work."
Also in today's announcement were promises to help tackle fuel poverty.
Winter fuel payments for pensioners would remain exactly as they were, and the temporary increase in cold weather payments made last year would be made permanent, Mr Osborne said, adding: "Higher cold weather payments should be for life, not just for general elections."
The Warm Front programme, which provides insulation and energy efficiency, will be scaled back and the new "green deal" will target the most vulnerable to tackle fuel poverty.
Friends of the Earth executive director Andy Atkins said: "The Chancellor's pledge for £200 million to support low-carbon technologies and a new bank to help green industries get off the ground is good news - as is his clear commitment that it will be a bank not a mere fund - but it will need significantly more than the £1 billion allocated to be effective."
And he warned: "Slashing energy efficiency grants to some of the UK's most vulnerable people will send a chill into many homes, while cutting £300 million on buses will have a devastating impact on services that the poorest people rely on most."