While most budgets were slashed 10 percent-30 percent, spending of the Energy and Climate Department was raised by 15 percent to $5 billion, the BBC reports.

That means the green energy sector emerged largely untarnished from the massive $130 billion public spending cuts that will hit other departments hard and result in the loss of around 490,000 public sector jobs.

"When money is short, we should ruthlessly prioritize those areas of public spending which are most likely to support economic growth, including investments in our transport and green energy infrastructure," Chancellor of the Exchequer George Osborne told Parliament as he unveiled Britain's deepest spending cuts since World War II.

London earmarked $1.6 billion for a carbon capture and storage demonstration plant, another $1.6 billion for a Green Investment Bank aimed at helping the carbon market and $320 million for offshore wind power projects.

Starting in 2011, London will start investing close to $1.4 billion in the so-called Renewable Heat Incentive aimed at greening the British heating sector, which is responsible for nearly half of the country's carbon dioxide emissions.

At the same time, it won't touch until 2013 the country's feed-in-tariff aimed at jump-starting investments into small-scale renewable energy generation.

"The aim for all of these investments is for Britain to be a leader of a new green economy -- creating jobs, saving energy costs, reducing carbon emissions," Osborne said.

The clean energy industry is benefiting from the government's determination to reduce Britain's carbon dioxide emissions by 32 percent until 2020 and of boosting the share of renewables in the energy mix to 15 percent, also by 2020.

The $1.6 billion in funding for the Green Investment Bank stays short of the $5.5 billion to $8 billion the industry claims it needs. Observers said they hope for private funding to make up the difference.

The decision to go ahead with a CCS demonstration project comes shortly after German utility Eon Wednesday announced it would leave the competition for a CCS plant, leaving Spain's Iberdrola SA as the only bidder.

CCS advocates hope that the still unproven technology can one day be exported to coal-heavy countries such as China and India, which could then store their greenhouse gases underground to reduce their CO2 footprint.

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