The government's Green Investment Bank could fund the building of new nuclear reactors, it has emerged.
It is the latest form of public financial support on offer to the industry from the government which continues to insist that the industry will not receive any more subsidies.
The Conservatives' pre-election manifesto promised that the Green Investment Bank – which was also in the coalition agreement – would finance "new green technology start-ups".
But documents issued before Christmas by Vince Cable's business department list new reactors, along with offshore wind farms and new electricity grids, as one of the three proposed "target sectors" on which the bank would initially focus.
Justine Greening MP, the economic secretary to the Treasury, appeared before the Commons environmental audit committee yesterday and denied that financial backing from a publicly funded bank would amount to a subsidy for the nuclear power industry.
Caroline Lucas, the Green party MP who sits on the committee, said: "Nuclear is not green in my view. But it's not new in anyone's mind. Funding nuclear makes a mockery of the whole idea of a Green Investment Bank and even indirect support – such as cheaper taxpayer-backed loans offered by a bank – still amounts to a subsidy."
Greening also dodged questions about whether the bank would be able to make billions of pounds of cheap loans or act as a more limited fund. The Treasury is concerned that borrowings would add to the government's deficit.
"I am not going to be hung up on semantics," she told the committee, telling them that a decision had not yet been made and that there were also other ways to encourage green investment. She also refused to be drawn on how much more effective a fully functional bank would be in encouraging the estimated £450bn investment needed by 2025 for the UK to meet ambitious carbon reduction and environmental targets.
Senior coalition sources said civil servants who wrote the documents decided to include nuclear as a low carbon form of generation that could potentially receive funding in order to be thorough. They had not been instructed to do so by ministers, it is understood.
A spokesman for the business department insisted that no final decision had been made on whether the Green Investment Bank would provide financial support for the nuclear industry.
If it did, it would add to a growing list of government help for the industry, including guarantees of a minimum carbon floor price, caps on nuclear waste liabilities and a possible new "low-carbon obligation" which would guarantee a higher price for the electricity reactors generate.
In an interview with the Guardian last month, Chris Huhne, the energy and climate change secretary, maintained that there will be no "support specific for nuclear for the very simple reason that it is an old and mature technology". He added: "The economic rationale for providing extra subsidy for something relies on it being an infant technology which has not come yet to commercial scale."
Greening said that the model for a Green Investment Bank should be decided by May and that it would be operational in 2012. Ernst & Young estimates that traditional sources of capital such as energy companies and infrastructure finance could only provide up to £80bn of the £450bn investment needed by 2025, arguing that only a fully operational bank can fill the gap.
Huhne, who together with environmentalists is pushing for a bank which can borrow and lend, admitted last month that" a fully fledged bank will take time to set up" particularly given the coalition's overriding priority of cutting the deficit. He suggested the idea that the bank could initially start off in a more limited capacity to kick-start investment as soon as possible but insisted that he wanted a bank set up as soon as possible.