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£1bn carbon capture storage funds scrapped

A £1bn pot of money for a flagship programme to combat climate change has been scrapped in the government’s spending review, stunning companies that have spent years preparing bids for the funds, the Financial Times has reported.

The move spells the death knell for a four-year-old contest to build carbon capture and storage systems on power plants and comes just days before Prime Minister David Cameron joins more than 130 world leaders in Paris for a UN conference on a new global climate change accord.

Chancellor George Osborne did not mention the contentious step in his Autumn Statement to the Commons and it was not included in Treasury spending review documents.

But just before 3pm on Wednesday, the Department of Energy and Climate Change notified the London Stock Exchange that: “The £1bn ringfenced capital budget for the carbon capture and storage competition is no longer available.

“This decision means that the CCS competition cannot proceed on its current basis. We will engage closely with the bidders on the implications of this decision for them.”

CCS systems are supposed to trap carbon dioxide emissions from power stations burning fossil fuels such as coal and gas, and store them deep underground before they can warm the atmosphere.

The technology offers a lifeline to fossil fuel companies facing mounting pressure to combat global warming. But is so costly that only one commercial power plant, in Canada, has installed it so far, despite governments committing $24bn to it over the last 14 years.

The UK has been at the forefront of EU efforts to develop the technology and Mr Osborne set aside £1bn in 2010 for a contest to attract companies to build CCS systems.

Two consortia, one led by Royal Dutch Shell and the other involving the Drax power station in North Yorkshire, were left in the latest round of the contest.

Drax pulled out in September but Shell and its partners were expected to submit plans shortly for their proposal to install CCS at a Scottish gas power station.

The UK’s CCS contest had already collapsed once after the number of groups bidding for the money fell to one and the government was unable to agree financial terms for the remaining consortium’s proposed project.

But the government’s decision to scrap it altogether caught the industry by surprise.

Amber Rudd, energy secretary, gave no clue about the decision in a speech last week on the future of UK energy policy.

Instead, she said her department was funding “transformative technologies” in many areas, “such as CCS”, which pointed to “the creation of new industries and new jobs in the UK”.

David Cameron, prime minister, has previously warned that the UK’s decarbonisation targets are not achievable without CCS.

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