£100 million was spent on a competition for developing technology to capture carbon emissions
The carbon capture and storage (CCS) competition was the second bid by Government to support schemes in the UK that capture pollution from power stations or heavy industry and store it permanently underground.
A failure by the Energy Department to agree the long-term costs of the competition with the Treasury helped lead to its cancellation amid concerns over the price to consumers, the National Audit Office (NAO) said.
CCS potentially has an important role to play in tackling climate change, and it is estimated it would cost the UK £30 billion more to meet targets to cut greenhouse gases by 2050 without CCS.
A report from the NAO warned it was "currently inconceivable" that CCS projects would be developed without Government support, but the second competition did not achieve value for money.
The then-Department of Energy and Climate Change, now part of the Business Department (Beis), began the programme in 2012 without agreeing with the Treasury on the amount of financial support available over the lifetime of the projects.
This contributed to the Treasury pulling its pledged £1 billion in capital funding in late 2015, resulting in the competition's cancellation.
The CCS competition was the second bid by Government to support schemes in the UK
There are undoubtedly challenges in getting CCS established
At the time it was cancelled, the competition had two preferred bidders: the White Rose consortium in North Yorkshire which planned to build a new coal plant with the technology, and Shell's scheme in Peterhead, Aberdeenshire, to fit CCS to an existing gas plant operated by SSE.
The NAO report said the department initially estimated it would cost consumers – who would subsidise electricity from the schemes – between £2 billion and £6 billion over 15 years, but by 2015, this estimate had risen to as much as £8.9 billion.
The report found the Treasury was concerned over the costs to consumers, and that the competition was aiming to deliver CCS before it was cost-efficient to do so.
The Treasury also considered it would not guarantee further investment needed to expand the technology and there were better uses for the £1 billion.
While the second competition had some benefits, improving understanding of the risk and challenges in deploying CCS in the UK, cancelling it hit investor confidence, the NAO said.
It came after a first competition to kick-start CCS was cancelled in 2011, the Government having spent £68 million on it.
Amyas Morse, the head of the National Audit Office, said: "The department has now tried twice to kick-start CCS in the UK, but there are still no examples of the technology working.
Climate change rally
Sun, September 21, 2014
The worldwide march is part of an international day of action to fight climate change ahead of a United Nations summit in New York on 23 September, which calls for drastic political and economic changes to slow global warming, has been organised by a coalition of unions, activists, politicians and scientists from around the globe
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US actors Leonardo DiCaprio (C), Edward Norton (R) and Mark Ruffalo (L) participate in the People's Climate March in New York, New York USA
"There are undoubtedly challenges in getting CCS established, but the department faced an uphill battle as a result of the way it ran the latest competition.
"Not being clear with HM Treasury about what the budget is from the start would hamper any project, and caused particular problems in this case where the upfront costs are likely to be high.
"The department must learn lessons from this experience if it is to stand any chance of ensuring the first CCS plants are built in the near future."