BRITISH GAS will today become the first power company to link energy efficiency directly to customer bills with an offer to freeze prices for three years for households that sign up to a new environmentally-friendly tariff.

The company, Britain's biggest energy supplier, is offering savings of pounds 30 a year for customers who switch to the new tariff for their gas and electricity. However, there is an "early redemption" penalty of pounds 100 for withdrawing from the scheme within the three-year period. The scheme is designed to help the Government meet its ambitious target of a 20 per cent improvement in energy efficiency by 2010. Ministers believe energy saving in the home could reduce carbon emissions by as much as 4.2 million tonnes a year - a bigger contribution to tackling global warming than the switch to renewable energy such as wind power is expected to produce.

British Gas's "Warm Fix" tariff is 9 per cent higher than its standard tariff, which means it will cost a typical customer with a three-bedroomed house pounds 60 more a year in gas and electricity. In return, the company will install energy efficiency measures such as cavity wall or loft installation and low-energy light bulbs for free, which it says will reduce energy bills by an average of pounds 90 a year. Savings would be less for customers paying quarterly in arrears.

An earlier scheme, launched in partnership with several local authorities, offers households pounds 100 off their council tax bills but they have to pay the pounds 225 cost of installing the energy efficiency measures.

British Gas has come in for severe criticism for the hefty increases in bills it has introduced this year in the face of soaring wholesale gas prices. But the Warm Fix deal is being supported by the industry regulator Ofgem. The company is also seeking backing for the scheme from consumer groups and the Department of Trade and Industry.

The company, part of Centrica, has 18 million gas and electricity customers. It expects tens of thousands of households to sign up to the new energy saving tariff, a spokeswoman said. If it was successful, then it would look at rolling out the scheme to cover other environmental initiatives such as the plan to start offering micro CHP boilers, which produce both heating and power and export surplus electricity back to the local grid.

The energy industry is urging the Government to introduce direct tax incentives to encourage greater energy efficiency, such as reduced rates of stamp duty on homes fitted with insulation. But the Chancellor, Gordon Brown, again turned a deaf ear to its pleas in last week's pre-Budget report.