In a shock move, Gordon Brown has today announced the formation of a new Department for Climate Change and Energy to be headed up by Ed Miliband, one of the prime minister's closest political allies.

According to reports, Miliband is to take up the cabinet role, with Hilary Benn remaining in charge of a now slimmed-down Department for Food and Rural Affairs (Defra).

Peter Mandelson has also returned to the cabinet as business secretary, though that department's responsibility for energy will now fall under Miliband's remit.

Neither the Department for the Environment, Food and Rural Affairs (Defra) nor the Department for Business, Enterprise or Regulatory Reform (BERR) were available for comment at the time of going to press.

Craig Bennett, director at the Prince of Wales' influential Corporate Leaders on Climate Change group, gave the reshuffle a cautious welcome, but warned there were many potential pitfalls that the new department could face.

"Having a dedicated department for climate change should help move it up the political agenda and having climate change championed in cabinet will be useful, " he said. "But the devil will be in the detail... you could see it working very well, but you could also see it working very badly."

He warned that managing climate change through one department could allow other departments that have a direct impact on carbon emissions, such as transport and food, sideline the issue. "There is also a risk that by putting energy and climate change together you could lose sight of the fact that climate change is not just about energy," he said. "Issues such as adaptation and new technology could get lost if you look at climate change purely through an energy lens."

Businesses will also fear that integrating components of Defra and BERR could prove tricky, given the two departments have reportedly had numerous disagreements over the past few years on how best to drive forward the government's energy and climate change strategies.

However, Bennett added that the appointment of Ed Miliband to head up the new department – a figure often described as being a close ally to the prime minister – hinted that the department would be given real political clout.

"You want climate change championed across government, not pigeonholed in one department, and for that you need the prime minister championing it," he said.

However, Leonnie Greene, spokeswoman for the UK's Renewable Energy Association, gave the move a more optimistic welcome, arguing that it should make it far easier for the government to execute on its renewables strategy.

"This is fantastic news that we have been requesting for years," she said. " It is extremely difficult having to straddle across BERR and Defra, with BERR dealing with renewable electricity, for example, while Defra handles heat. The renewable energy strategy published this summer showed the government was beginning to take a more joined-up approach and this builds on it – climate change is basically an energy infrastructure issue so bringing them together makes sense."

Stephen Hale, director of green business coalition the Green Alliance, similarly welcomed the creation of the new department as a positive step for the UK's green business community, claiming that the creation of a dedicated climate change department was "not before time".

"Ed Miliband's in-tray is piled high with issues the old structure did not resolve," he said. "The new department puts climate change where it belongs with its own seat at the cabinet table."

Friends of the Earth executive director Andy Atkins also gave the new department a ringing endorsement. "The creation of a single department to overs ee climate and energy policy is a big step forward," he said. "This is a golden opportunity to ensure the UK’s energy and climate policy – so often at loggerheads – work together to tackle both the climate and the energy crisis."

However, Dr Neil Bentley, director of business environment at the CBI, offered a note of caution, warning that the new department will only prove effective if it is backed up with effective policies.

"Both climate change and energy security are vital national interests that need the government’s fullest attention and urgent action," he said. "Combining them may help identify both synergies and trade-offs, but we must avoid either one becoming subordinate to the other. And ultimately, it is sound, timely policy decisions that matter most, not departmental names or structures."