Business Secretary Vince Cable said it was "reasonable" to offer tax breaks for controversial fracking in a bid to to encourage exploration of an unconventional energy resource in the UK.
Friends of the Earth called promising tax breaks for fracking in the current economic climate "a disgrace".
The group's head of campaigns, Andrew Pendleton, added:
Ministers should be encouraging investors to develop the nation's huge renewable energy potential.
This would create tens of thousands of jobs and wean the nation off its increasingly expensive fossil fuel dependency.
Greenpeace has accused George Osborne of offering "sweetheart tax deals" to reassure companies that fracking would be profitable.
Energy campaigner Lawrence Carter said: "Experts from energy regulator Ofgem to Deutsche Bank and the company in receipt of this tax break, Cuadrilla, admit that it won't reduce energy prices for consumers.
"Instead we're likely to see the industrialisation of tracts of the British countryside, gas flaring in the Home Counties and a steady stream of trucks carrying contaminated water down rural lanes."
George Osborne said tax breaks for fracking are being created because shale gas has a "huge potential to broaden the UK's energy mix".
The Chancellor said: "We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits.
"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that.
"I want Britain to be a leader of the shale gas revolution - because it has the potential to create thousands of jobs and keep energy bills low for millions of people."
The Treasury said the new tax regime for fracking firms will reduce the tax on income from shale gas production from 62% to 30%.
The Government has also outlined measures to ensure local communities benefit from the development of shale, with £100,000 paid for each well where fracking takes place and 1% of revenues if the drilling proves to be commercially viable.
New planning guidance on shale gas is set to be published by the Communities Department as the Government attempts to drive forward exploration.
Chancellor George Osborne has unveiled tax breaks for fracking in a bid to create the "most generous" regime for shale gas in the world.
A new shale gas allowance will more than halve the tax due on a proportion of income from production, which will be determined following consultation, in order to encourage exploration of the unconventional energy resource in the UK.
The backing from the Treasury comes after a recent report from the British Geological Survey revealed there was twice as much shale gas in the north of England as previously thought.
Other areas of the country could also have shale gas reserves.