The government yesterday threw its weight behind a European Commission proposal to force power companies to pay more for their carbon credits.

The Budget contained a series of measures intended to boost business's contribution to environmental sustain- ability including tax benefits for companies investing in technologies that reduce energy consumption or save water, a 25% rise in landfill tax to £40 a tonne, and an extension of tax benefits for companies that invest in low-emission cars.

Wealthy individuals will also be made to pay with duty slapped on turbine fuel for private pleasure-flying and on the red diesel used in pleasure boating.

Describing tackling global warming as "our greatest obligation to future generations", Chancellor Alistair Darling announced new targets to make all new non-domestic buildings zero-carbon by 2019. The pledge is on op of the existing goal for all homes to have no net carbon emission by 2016.

But more controversially, in order to boost cuts in carbon dioxide emissions under European Union's Emissions Trading Scheme, in which heavy industry is set limits for the carbon it produces and then is allowed to trade the allowances to meet those obligations, he said he wanted to see auctioning of 100% of credits for electricity generators from 2012.

This will mean they will have to pay for all of their allowances, a rise from the 7% auctioned under the current phase. But the move is in line with proposals unveiled by the European Commission in January.

A spokeswoman for the Association of Electricity Producers said: "There are already quite large costs for most power generators. Clearly with 100% auctioning that will increase and will change the balance between the technologies quite a bit."

For companies investing in energy-saving or environmentally beneficial plant and machinery the government has promised a 100% first-year allowance so they can deduct the full cost in computing the taxable profits of the company for that period.

It has also added certain plant and machinery which is energy efficient, reduces water use or improves water quality to a list of investments that will also get 100% allowances.

The Government is extending an allowance that allows companies to write off the purchase of new low carbon dioxide emitting cars although it has reduced the threshold to cars with CO2 emissions below 11g/km, down from 120g/km.

The Chancellor said the first three five-year carbon budgets, which will set the amount of carbon the economy is allowed to use to 2022, will be announced alongside next year's Budget.

Emma Howard-Boyd, head of socially responsible investing at fund manager Jupiter said: "It is about sending the right sorts of signals."