The steps, following an environment initiative announced earlier by Prime Minister Yasuo Fukuda, include halving the cost of buying solar power systems in Japan, home to major solar component makers.
These include Sharp Corp, Kyocera Corp and Sanyo Electric Co.
The government also aims to introduce new legislation next year to require oil and gas firms to use a certain amount of cleaner energy, such as biofuels, from 2010 when making petroleum products and providing gas, Nikkei reported.
The paper said details of subsidies and tax cuts would be decided by the end of August, the deadline for budget requests by government offices for the next fiscal year starting on April 1.
The measures are expected to help cut the cost of a solar power system, which now sells for about 2.3 million yen ($21,440), to 1.1 million yen in three to five years, it added.
A senior official at the Ministry of Economy, Trade and Industry (METI) declined to comment on the report but said the ministry would receive "urgent recommendations" from its panel tasked with discussing clean energy.
The prime minister, aiming to take the lead in the fight against climate change as host of the Group of Eight leaders' summit next month, unveiled on June 9 a long-term goal to cut greenhouse gas emissions by 60-80 percent from current levels by 2050.
The initiative, including an aim to have more than 70 percent of newly built houses equipped with solar panels by 2020, prompted the call for drastic measures to accelerate the use of new energies, Nikkei reported.
Japan imports most of its fuel and oil and gas account for more than half of all its energy consumption.
Faced with soaring crude oil prices, the government wants to trim its reliance on fossil fuels, in addition to improving its green credentials.