The compromise deal championed by Liberal Democrats comes after developers warned “zero carbon” rules due to be put in place in 2016 would place too great a burden on business.
And under the watered down proposals smaller housing developers, building schemes of less than 50 homes will be exempted from tougher environmental controls altogether.
Ministers hope the move will open up the housing market and encourage smaller developers to build more homes.
The measures will be included in the Infrastructure Bill, which will form part of the coalition government’s last legislative programme before the 2015 general election.
Its main focus will be on increasing housing and speeding up the planning process for new infrastructure.
Ministers have accepted that builders will be allowed to fit homes up to Level 4 of the new Code for Sustainable Homes rather than Level 5 – the accepted standard for zero carbon homes.
The compromise deal big house builders will now be able to pay into a Government environmental fund if homes they build in England do not meet the required standard of sustainability.
Where the developer chooses not to go zero-carbon, they can build a home with emissions 44% lower than 2006 levels while contributing to alternative green schemes at a rate of between £38 and £90 per tonne of carbon to be saved.