On 23 April, Ed Miliband, Secretary of State for Energy and Climate Change, announced plans to set the demonstration of Carbon Capture and Storage (CCS) as a condition for building new coal fired power stations in the UK. Furthermore a 'full-scale retrofit' of all power plants currently being built (and those currently in the pipeline) will be implemented within five years of CCS technology being independently judged as technically and commercially proven. Hailed by the Chairman of the Environment Agency, Lord Smith, as "the most significant environmental measure since the introduction of the Climate Change Act", the Government intends to build four demonstration plants by 2020.

Carbon Capture and Storage (CCS) is a three-step process whereby the CO2 from power plants and other industrial sources is captured and transported (usually via pipelines) to storage points in safe geological sites such as deep saline formations or depleted oil and gas fields. CO2 emissions can be cut by up to 90%. There are currently three types of capture technology: post-combustion, pre-combustion and oxyfuel. At present, the technology is largely untested and this announcement is seen as the UK's attempts to set themselves at the forefront of its development.

The development of this technology is considered key to Government plans to continue the UK's heavy use of coal in electricity generation whilst still reaching targets for reducing CO2 emissions. A demonstration plant is already operating in Germany and, last month in France, the first ever existing operation was fitted with CCS technology.

By setting CCS as a condition for new coal plants, the UK will still remain reliant on coal, a form of energy production Miliband described as, "cheap and flexible enough to meet fluctuations in demand for power". The new demonstration plants will be funded by an incentive mechanism as announced by the Chancellor in the recent Budget. Proposals for how the incentive will work are being considered.

The proposals are hoped to put British businesses at the forefront of CCS technology as well as creating hundreds of jobs. According to a recent report for the Department for Business, Enterprise and Regulatory Reform, the international market for CCS in 2007-08 was worth £13.28bn, of which the UK's share was £468m. This accounts for less than 1% of the international low-carbon technology sector but there is huge potential for expansion, particularly as other governments announce their own plans for CCS development. The sector is predicted to grow by around 4% a year between now and 2015. The CBI responded to Government proposals by issuing a statement that supportively declared, "it is right for Britain to be part of the global drive towards cleaner coal".

However, despite this, industry reaction to the Government announcements appears lukewarm. According to the Guardian, energy firms, including E.ON and RWE Npower, are seeking assurances from the Government that they will not have to fit CCS technology to existing plants by 2025 if the technology remains unproven by then. Government plans envisage the technology being proven by 2020 and are working to this deadline. This has alarmed industry leaders who fear the Government will go ahead with plans to fit CCS whether or not the technology is proven to be scientifically and economically viable. Although keen to highlight their support for the technology, they are concerned that they may have to close power plants in 2025 and are seeking assurances that they can keep them open until 2030 or for an additional number of operating hours. Without this assurance, there will be real questions over the financial vialbilty of investing in new coal power plants and, ultimately, in CCS technology. Questions have also been raised about the Government's plans for the Environment Agency to act as an independent judge over the viability of CCS technology.

Further response came from Dorothy Thompson, chief executive of the Drax group, the UK's single largest source of electricity and carbon. Thompson acknowledged that, potentially, CCS technology was the solution to reducing carbon emissions from fossil fuel plants. However, she doubted whether it would contribute anything significant to Government targets for reducing carbon emissions by 34% by 2020. Ms Thompson argued it is more important to cut emissions through strategies, such as co-firing, and raising generating capacity through these strategies sooner rather than later. Importantly, it was pointed out that, should a modern coal-fired station be fitted with CCS today, it would need to generate 25% more electricity just to power the equipment to remove the increased carbon being emitted. Ms Thompson finished with a warning against planning for the future and neglecting the present.

More positively, Scottish First Minister Alex Salmond welcomed the announcement with his belief that Scotland has the storage capacity, natural resources and technology to lead the world in CCS development. Speaking at the launch of Opportunities for CO2 Storage Around Scotland, the first comprehensive study of carbon capture and storage undertaken in the UK, Mr Salmond said the study underlined "how vast Scotland's potential in CCS" was.

At present, only an outline consultation has been published by the Government. However, a full consultation is expected to follow this summer. The Government is also consulting on whether there should be a strict emissions limit for any plant that is not retrofitted with CCS technology.