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Spending Review May Axe CCS Subsidies For Coal Companies

The Treasury’s public spending review has cast doubt on the future of Longannet power station’s ambitious carbon capture programme, despite a commitment by ScottishPower to invest £5 million in university research on the project.

The question mark comes despite commitments by the UK coalition Government to maintain the previous Labour government’s plans to finance four large-scale carbon capture and storage (CCS) demonstration projects.

The projects are needed to prove that 90 per cent of the carbon emitted by coal-fired power stations can be removed and stored underground without making the cost of the electricity produced prohibitive.

Because power firms are unwilling to pay the costs of £1 billion or more to prove this, a government competition was announced in 2007. The prize is payment of all the costs of fitting CCS to a commercial-scale power station.

In March, the Government whittled competitors for the first demonstration project down to two — ScottishPower’s Longannet scheme and a plan by E.ON to build a new CCS-fitted power station at Kingsnorth in Kent. The companies were given £90 million to produce full designs by early 2011.

But now the Treasury spending review threatens these schemes. Although the cost of them is to be financed by a levy on electricity bills rather then by taxes or borrowing, the Treasury is understood to regard this as public spending. This is because any increase in electricity bills will reduce the spending power of consumers and businesses, cutting the yield from taxes such as VAT.

In July, Chris Huhne, the Energy and Climate Change secretary, announced that he was setting up an Office for Carbon Capture & Storage and would launch the selection process for the remaining three projects this autumn. But yesterday his department confirmed that a Treasury review was under way. A spokeswoman said: “It is right that the Government carefully scrutinises all major capital projects given the current economic circumstances — CCS projects are no different in this respect.

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