UK proposals to reduce the output of the greenhouse gas, carbon dioxide by 20 percent are set to increase household fuel bills by 3 percent, energy minister Steven Timms said yesterday.

Industry users will have to pay 6 percent more, leading to further increases in household bills.

Carbon dioxide is a by product of burning fossil fuels such as coal and one of the ‘greenhouse gasses’ suspected of affecting global warming.

The proposals are the first phase of the EU Emissions Trading Scheme, which runs from 2005 to 2007 and part of the government's commitment of moving towards a 20 per cent reduction in emissions of carbon dioxide by 2010. The scheme allows energy suppliers who cut down on burning coal by using ‘greener’ electricity to trade their ‘carbon' surplus, thus helping to pay for the more expensive generation methods.

But industry leaders say the proposals could make Great Britain uncompetitive, particularly if EU members do not implement their proposals at the same time.

Digby Jones, director-general of the Confederation of British Industry, said: "Business will do more than its bit on the environment but the government must not be cavalier with UK competitiveness.”

"Ministers should reconsider these proposals. At the very least they should promise not to press ahead without guarantees that all EU member countries will be just as tough.”

"Emissions trading is the right approach but if we go too far and other countries don't make similar commitments, we are going to put our hard-pressed manufacturers in an extremely difficult position in global markets."

"Today's announcement goes beyond the UK's international commitment on climate change and it is not clear that other EU countries will go as far when imposing targets on their businesses.”

"Many members of the EU will not even be ready to comply within the deadline. This is platinum plating, which puts UK jobs at risk,” Digby Jones added.