The UK Government has pledged £1bn to speed progress on two pilot carbon capture and storage (CCS) projects.

MPs urged the government to fast-track final funding decisions on the two pilot projects at Peterhead and Drax by early 2015, after ten years of delay in the ‘competition’ launched to provide capital support for the industry.

Launching Decc’s Energy and Climate Change Committee report today, energy minister Michael Fallon said: “The UK is ahead of the rest of Europe with two CCS projects in White Rose and Peterhead actively undertaking detailed engineering studies ahead of full construction.

"As well as the £1bn we are investing in CCS, there will also be additional support through low-carbon Contracts for Difference for a number of years to come, so it’s important we take the time to get our decisions right and follow a robust process. The higher costs associated with fitting and running CCS means that it is likely to develop only in response to specific policy intervention and will need subsidy."

Fallon added that the government needed to be transparent about the costs of CCS and how they would be met.

The minister continued: "The guaranteed price tariffs for low carbon energy known as Contracts for Difference (CfD) will be essential to incentivise CCS projects and provide a route to market for non-competition projects.

Fallon concluded: “Our vision for CCS in the UK does not stop at these first projects. We want to see a strong and successful CCS industry able to compete on cost with other low carbon technologies in the 2020s.”

Committee chair, Tim Yeo MP, added: "The ‘competition’ the government launched to award capital support to CCS has turned out to be a model example of how not to support a fledgling industry, taking successive governments the best part of 10 years to complete.

"To ensure CCS can start helping us cut power sector emissions by the 2020s – when it will be needed to meet our climate targets – the Government must reach final investment decisions with the two projects left in its competition (at Peterhead in Scotland and Drax in Yorkshire) by 2015 and commit to a timeline for awarding guaranteed price contracts to projects outside its CCS commercialisation competition."

CCS technology – which can be fitted to coal and gas power stations – is vital to limit climate change, according to the Energy and Climate Change Committee, because there is more CO2 locked up in fossil fuel reserves than can be safely burnt without pushing global temperatures beyond two degrees Celsius – a dangerous threshold according to scientists.

Front-end engineering design (FEED) studies will take around two years to complete. Companies expect to take their investment decisions by end of 2015 with Government taking decisions shortly afterwards.

Tim Yeo added: "The UK is incredibly well placed in regards to CCS with the engineering and academic expertise, suitable geological sites and cross-party commitment to cut CO2. With the right support, the UK could become a world leader in this technology, which will be needed across the world when a global deal on tackling climate change is reached.

“The UK has so far attracted 50% of the proposals for CCS projects in Europe and with the right Government support it could be feasible to create a ‘storage market’ where other countries pay to permanently store CO2 in the UK’s disused offshore geological sites in the North Sea. It could also enable enhanced oil recovery which would help us maximise output from our remaining North Sea oil and gas reserves. Some CCS technologies may even be able to produce electricity more cheaply than conventional fossil fuel power stations.”