Cheaper boilers, free home insulation and lower bills are being offered to one million customers under a government-backed scheme to encourage greater energy efficiency and combat greenhouse gas emissions.

The scheme is largely designed to help the government meet its Kyoto target of cutting carbon dioxide emissions by 20 per cent by 2010.

Patricia Hewitt, trade and industry secretary, said: "Just as consumers choose to sign up for longer contracts when they buy mobile phones and receive free kit and extra services, we want to see if there is a market for longer contracts in return for lower electricity and gas bills achieved through energy efficiency.

"This new pilot scheme could provide benefits all round. With the right consumer safeguards in place, consumers will benefit from lower gas and electricity bills, energy companies will benefit from more committed customers- and the environment will benefit from reduced CO2 emissions through improved energy efficiency."I hope that consumers and suppliers will rise to this challenge. Not only can consumers now save money by switching easily between suppliers - as thousands do each month - the new proposals mean they can opt for even cheaper bills by signing up for an energy efficiency package deal."

Shadow Energy Minister Laurence Robertson said: "Any drive to save electricity and help households cut bills is positive. However, we reserve our judgement, as these plans would only help up to four per cent of customers.

"The government's obsession with wind farms and neglecting other renewable sources is holding back greater energy efficiency. Therefore, we must see more flesh on the bones before judging if today's proposals are a step forward or a step backwards."

Andrew Stunell, energy spokesman, said: "This is a very welcome, but long overdue, step that will benefit consumers, companies and the environment.

"But it needs to be linked to the provision for 2-way meters to be installed when companies replace meters in the home, making ultra-high efficient gas central heating possible."

Forum Response: Energy Saving Trust

Philip Sellwood, chief executive of the Energy Saving Trust, said: "The pilot will offer a real incentive for energy suppliers to provide more energy efficient measures such as cavity wall insulation and condensing boilers to their customers. More importantly, it will encourage consumers to make a long term investment and help us meet the goals laid out in the government's Energy White Paper.

"If we are to achieve our objectives of cutting CO² emissions by 60 percent by 2050, as outlined in the Energy White Paper, then we - the consumers, energy suppliers and government - must work together to help reduce the negative effect our reckless energy use is having on our environment.

"The Energy Saving Trust closely monitors industry and government when it comes to energy efficiency. We will continue to ensure that our advice and services provide reliable and independent information to customers on the energy services packages that are offered.

"We are looking forward to working with government and industry to make this pilot a success and reap the benefits of being more energy efficient in the home and helping our environment."

Forum Response: EDF Energy

Derek Lickorish, chief operating officer for EDF Energy's customer branch, said: "We are committed to supporting energy efficiency, both to save money for our customers and for the wider environmental benefits.

"Over the last three years we have invested over £30 million in energy efficiency schemes and this pilot will mean that we will be able to offer customers energy efficiency packages, such as cavity wall installation, loft insulation or energy efficient lighting, as part of their contract for energy supply.

"The pilot will also help us to establish if a true market can be developed for including energy efficiency measures as part of a customer's energy bill. The development of a thriving market for Energy Services would represent an important next step in meeting future challenges.

"Since its programme began in 1994 EDF Energy has provided over five million energy saving measures and makes available a range of energy saving offers to its customers through regular communications such as bill inserts.

"In addition to providing a range of energy efficiency literature, EDF Energy staff handle over 30,000 energy advice calls each year. The service is a central source of information for any customer needing help or suggestions on saving energy and money."