The government is to launch a competition for low cost carbon neutral homes following its £60k home initiative.

A second, carbon neutral, phase of the Government's Design for Manufacture competition will be launched tonight at a Green Alliance event.

Newly-appointed environment secretary David Miliband and housing minister Yvette Cooper will announce plans to challenge developers to deliver innovative low cost and low carbon housing.

The new phase, which will be run by English Partnerships on six new sites, will create small scale eco-communities as opposed to individual homes and developers will be challenged to deliver either low-carbon or carbon neutral affordable homes.

Carbon neutral developments require that any carbon emissions generated by the use of buildings must be offset by carbon savings elsewhere.

In their speeches tonight, Miliband and Cooper will outline their intent to use Building Regulations, the Code for Sustainable Homes and forthcoming Planning Policy Statement on Climate Change to support a long term drive towards low carbon and then carbon neutral developments.

Miliband will call for a new environment contract that sets out the rights and responsibilities of government, businesses and individuals. He said: "A low carbon economy can be good for business, good for the environment, and good for all citizens, including the most disadvantaged.

Cooper will announce a new feasibility study to make the Thames Gateway a low carbon development area within the next decade and then a move towards carbon neutrality.

Cooper said the first phase of the £60,000 homes competition proved that developers could deliver well designed affordable homes with strong environment credentials. She said: "The next phase of the competition provides a fresh opportunity to meet the challenge of building new developments in a more environmentally sustainable way."

Full details of the competition will be set out later this summer.