Steven Timms said household bills may rise by 3% and industry might have to pay 6% more.

Business leaders, meanwhile, complained that the scheme, which would allow firms to buy and sell their right to pollute, may make them uncompetitive.

Carbon dioxide is seen as one of the main causes of global warming.

Deadline

European Union members have until the end of March to submit their strategies for limiting emissions of so-called greenhouse gases.

The UK on Monday said it would aim to cut the output of carbon dioxide by a fifth by 2010.

Analysts said that would benefit power companies that rely on cleaner types of energy generation, such as nuclear, water and wind. Coal-powered generators would be the most heavily penalised.

The targets, however, are stricter than required by either the EU or international agreements such as the Kyoto treaty, and that has angered business representatives.

'Over the top'

Digby Jones, director-general of the Confederation of British Industry, told BBC Radio Four's Today programme: "The UK would be going over the top, big time."

He complained that the UK would be one of only a handful of countries to meet the requirements, leaving foreign rivals free to produce dirtier, cheaper energy.

Margaret Beckett, secretary of state for the Department for Environment, Food and Rural Affairs, said the plan would prompt companies to find ways to become more efficient and greener.