London Mayor Ken Livingstone has today been accused of "abandoning" the emerging market for electric cars in the capital after this week approving plans that will exempt low emission cars from the congestion charge.

Critics warned that the changes to the scheme, which will see cars that fall into Vehicle Excise Duty Band G charged £25 to enter the congestion zone while low emission cars in Bands A and B will be exempt from the charge, will have serious unintended consequences, undermining the market for zero emission electric vehicles and resulting in increased congestion and air pollution.

Currently, only electric cars and a number of hybrid and alternative fuel vehicles are exempted from the congestion charge, a benefit which experts claim has helped drive demand for electric cars such as the G-Wiz and Mega City Nice Car. But electric car firms are now concerned that exempting conventional low emission cars from the charge will result in reduced demand for electric vehicles as drivers keen to avoid the congestion charge instead invest in Band B cars that can still emit up to 120g CO2 per km.

"By treating Band B vehicles that emit up to 120g CO2 per km the same as Band A vehicles [which include electric cars and vehicles emitting less than 100g per km] it sends out very confusing signals to the public," said Keith Johnston, managing director of G-Wiz supplier GoinGreen. "The announcement today is likely to have a negative impact on investment in electric cars and perpetuate the internal combustion engine."

Eveit Geursten, co-founder of the Nice Car Company which supplies the Mega City electric car, argued that electric cars would still offer a strong value proposition in the form of free parking, zero road tax and negligible fuel costs, but he said he was still "very disappointed" by the Mayor's decision. "London has more electric cars on its roads than any other city and we have a strong emerging industry," he said. "It should be being encouraged by tax breaks and incentives, not abandoned."

A spokesman for Transport for London (TfL) insisted that the electric vehicle congestion charge discount would remain in place and argued that offering a discount to other low emission vehicles would have little impact on electric car sales. He also noted that electric cars had always had to compete with alternative fuel vehicles and hybrids that are exempt from the congestion charge.

According to a recent report from the Centre for Economics and Business Research (CEBR), the changes to the charging system could also unintentionally lead to increased congestion and air pollution.

Critics might note that the research was commissioned by Land Rover, but report author Mark Pragnell insisted the conclusions remained valid. "The behaviour that heavily penalising Band G cars will incur is that people will pay the charge or trade down to a more efficient car, they are not about to get on a bus," he explained. "Meanwhile, people with Band B cars that were previously displaced onto public transport by the congestion charge will now be able to drive for free – the changes could easily lead to more congestion."

He also warned that many Band B cars run on diesel and as a result release similar or even higher levels of particulates than larger vehicles, meaning that any increase in the number of cars entering the capital would lead to increased air pollution.

The TfL spokesman said that the scheme was expected to have a "broadly neutral impact" on congestion levels. "Only two per cent of vehicles in the zone are currently in Band A and B so there will have to be a huge shift towards these vehicles to make a difference," he said. "The mayor has also made it clear that he will keep the scheme under review."

Johnston said that he would like to see a more sophisticated emissions-based charging system introduced that would still see Band B cars charged to enter the capital but at a reduced rate.

"GoinGreen's view is that as with road tax there should be a graduated system linked to emissions with only emission free and ultra low carbon vehicles being exempt i.e. electric vehicles and hydrogen fuel cell vehicles and hybrids emitting less than 100g CO2 /km," he said.

Johnston claimed that he has been informed that the Mayor's office is already considering such a tiered system that would see a £4 a day charge for Band B cars introduced in the event that fears about increased congestion are proved justified. A spokesman for TfL declined to comment on the existence or otherwise of such a contingency plan, adding only that the effectiveness of the planned changes would be continuously reviewed.