George Osborne has offered to drop his calls for deeper cuts in subsidies for onshore wind farms if his Liberal Democrat coalition partners compromise on "inflexible" green energy targets.
Amid coalition wrangling over the shift away from fossil fuels, the Chancellor urged Lib Dem Energy Secretary Ed Davey to retain a big role for natural gas rather than commit to the virtual decarbonisation of the electricity market by 2030.
In return, he is prepared to accept Mr Davey's proposed cut in onshore wind subsidies of just 10%. The Treasury has been pressing for tougher cuts in the subsidies, of up to 25% according to reports.
In a letter to Mr Davey, the Chancellor urged the Energy Secretary to make a "clear, strong signal" of support for "unabated gas" up to 2030 and beyond, including a promise that consumers would benefit from falling gas prices.
"Setting inflexible targets on the energy sector is inefficient," he wrote in the letter, quoted by the Financial Times.
A Treasury insider refused to comment on a leaked document, but said: "George is arguing for a solution that is good for both investors and the businesses and consumers who pay the bills."
Mr Osborne came under fire from a senior Conservative MP for failing to support low-carbon energy. Tim Yeo, chairman of the Commons Energy and Climate Change Select Committee, said: "The Treasury has never been signed up to the green agenda, but this has got much more serious in the past year."
Speaking to the Guardian, he added: "They are working to target some Conservative backbenchers, pursuing a policy designed to prove that they are not going to get into so-called costly green initiatives. It's extraordinary."
Shadow energy secretary Caroline Flint said: "Britain's energy policy is in turmoil as divisions in Government are harming the UK's ability to secure investment for low carbon energy and jobs, fairer prices and more competition.
"Labour has been warning for the last year that we need an Energy Bill to challenge the dominance of the Big Six, secure low carbon investment, fairer bills and support for energy efficiency. The draft bill does not meet this test."