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Cabinet ministers have agreed a far-reaching, legally binding “green deal” that will commit the UK to two decades of drastic cuts in carbon emissions. The package will require sweeping changes to domestic life, transport and business and will place Britain at the forefront of the global battle against climate change.

The deal was hammered out after tense arguments between ministers who had disagreed over whether the ambitious plans to switch to more green energy were affordable. The row had pitted the energy secretary, Chris Huhne, who strongly backed the plans, against the chancellor, George Osborne, and the business secretary, Vince Cable, who were concerned about the cost and potential impact on the economy.

However, after the intervention of David Cameron, Huhne is now expected to tell parliament that agreement has been struck to back the plans in full up to 2027. He will tell MPs that the government will accept the recommendations of the independent Committee on Climate Change for a new carbon budget. The deal puts the UK ahead of any other state in terms of the legal commitments it is making in the battle to curb greenhouse gases.

With the Treasury and Cable’s business department sceptical, green groups had feared that ministers would refuse to back the committee and were accusing them of reneging on Cameron’s promise to lead the “greenest government ever”. But with Clegg and the Liberal Democrats desperate to boast a success on one of their key policies, supporters of a deal won the day. A government source told the Observer: “This is a victory for the cause of enlightenment over the dark forces at the Treasury.”