Many small firms are keen to adopt environment friendly measures but are put off by the cost, says a business lobby group.

The government needs to encourage green business policies, added the Federation of Small Businesses (FSB).

In its report: Small Businesses and the Low Carbon Economy, the FSB said the UK is aiming to cut its carbon emissions by 20% within a decade.Yet the sheer costs involved deter many smaller firms from adopting green policies.

The FSB wants the exisitng green investment loan scheme expanded and is calling on the government to offer financial incentives to make buildings more environment friendly.

Small firms can currently access a 0% loan scheme for energy efficient equipment. The scheme enables businesses to save on costs without having to bear the full, up-front investment. The FSB believes the programme should be reformed and developed so that more firms can take advantage of it.

The reason, added the FSB, is that around half of the UK's carbon emissions are produced by buildings. But as 44% of small businesses rent their properties, often on short term periods, there is little incentive for tenants or landlords to introduce green building programmes.

The FSB said banks, energy and construction companies should be incentivised to cover the upfront costs.

"The need to cut carbon emissions and the predicted increase in the cost of energy over the coming decade means that the move to a low carbon economy is more of an economic imperative than ever,” said the FSB’s national chairman, John Walker.

"In order to achieve the tough targets set by the government, it must ensure that it makes economic sense for the UK's 4.8 million small firms to go green. Small businesses can play a huge part in the UK's fight against climate change, and we urge the government to harness this potential when it publishes its Energy Bill, expected later this Parliament.

"If the correct policies are put in place now, then small businesses will have the potential to significantly reduce carbon emissions while also delivering the substantial economic growth that the UK economy desperately needs."