Households face artificially inflated electricity bills under a government move to make businesses greener, an influential committee has warned.

Setting tougher carbon penalties than the rest of the Europe will also have a "devastating effect" on heavy industry while failing to have any overall impact on emissions, according to MPs.

In a critical report, the Commons Energy and Climate Change committee warned the Treasury against revenue raising exercises "disguised as a green policy".

The government announced last year it was setting a carbon floor price - a minimum cost businesses have to pay for emissions - after the price under the European-wide emissions trading system bottomed out following a collapse in demand sparked by the economic crisis.

By "going it alone" on setting a minimum levy, the UK faces the prospect of industry relocating to elsewhere in Europe, MPs warned.

Higher carbon costs also mean electricity prices will increase as the UK ends up effectively subsidising other European states, they added.

Committee chairman Tim Yeo said: "The Chancellor was right to say we won't save the planet by putting the UK out of business.
"Ironically, however, it is the Treasury's decision to set a Carbon Price Floor that could result in industry and electricity production relocating to other EU countries.

"Unless the price of carbon is increased at an EU-wide level, taking action on our own will have no overall effect on emissions other than to out-source them.

"A revenue raising exercise disguised as a green policy won't help anybody, the price of carbon has to be increased at an EU level to kick-start investment in clean energy."

Energy generators and heavy industry, such as steel and ceramics, face an "exorbitant" top-up tax of up to £25 per tonne of CO2 under current plans, according to the report.

Although UK emissions will be reduced under the Treasury plans, overall levels across Europe may not, the report said.

It calls for EU targets to be toughened up to deliver a 30% emissions reduction target by 2020 and an overall 60-80% reduction in greenhouse gas emissions by 2050.

Yeo added: "Instead of going it alone, the Chancellor would be better-off working with other European Governments to make the EU Emissions Trading System more effective as a whole.

"Before phase three starts next year, EU countries must set aside pollution permits to end the glut that has caused the price of carbon to collapse."

A Treasury spokesman said: "The Chancellor has made clear that the UK should go no slower but also no faster than other European countries in cutting emissions.

"To do this we need to reduce our emissions in the way that works best for circumstances in this country. The Carbon Price Floor is vital in reducing uncertainty and creating incentives for investment in low carbon electricity generation now so we have lower emissions in the future.

"At the Autumn Statement, the Government recognised the challenges faced by energy-intensive industries in the transition to a low-carbon economy and announced an ambitious £250 million package of support.

"This includes £100 million in compensation for the added indirect costs of the Carbon Price Floor."

Last year environmentalists warned household electricity bills could be pushed up by around £300 a year by 2020 as a result of a continued reliance on fossil fuels to provide energy.