Former head of the CBI, Adair Turner, is being tipped to become chairman of the government's new Committee on Climate Change with responsibility for setting and monitoring the UK's carbon budgets.

According to reports in The Observer, the Merrill Lynch Europe vice chairman and former head of the government's pensions commission, has been championed by environment secretary and is expected to be confirmed as chairman of the new committee.

A spokeswoman for Defra refused to comment on the reports, but confirmed that the appointment process for the committee was well advanced.

She said that Defra was aiming to set the Committee up in shadow form before the climate change bill is formally passed by parliament so that it can get underway as soon as the legislation reaches the statute book.

The bill, which sets out the world's first legally binding carbon emission targets and requires successive governments to meet five-year carbon budgets, is currently in the Lords and is expected to be passed by early summer at the latest. The new committee is then expected to deliver its first carbon budget this September.

The committee will have the power to set carbon budgets and report to parliament annually on government's progress on meeting those budgets. It will also have the power to make policy recommendations to government and is to address whether the target of 50 per cent cuts in carbon emissions by 2050, excluding aviation and shipping, should be revised.

The appointment of Turner, who headed the CBI between 1995 and 1999, is expected to be welcomed by business groups who regard him as an accomplished technocrat with a longstanding interest in environmental issues.

However, according to The Observer Gordon Brown had feared Turner may prove a "loose cannon".

Despite his impeccable pro-business credentials, Turner has become a vocal supporter of more urgent action on climate change and has even advocated a shift in the understanding of how economic success is measured in order to help tackle the issue.

In late 2006 he wrote a lengthy article for Prospect Magazine endorsing the Stern Report's conclusion that it would be more cost effective to act to tackle climate change now rather than later and in a collection of essays published last week entitled Do Good Lives Have to Cost the Earth? Turner went further still, arguing that maximising GDP should not be the overriding objective of government policy.