By Barbara Lewis and Henning Gloystein
BRUSSELS/LONDON (Reuters) - The British government will not get any European Union funding under the first round of a subsidy scheme for carbon capture and storage (CCS) projects because it has failed to provide the required financing guarantees, EU sources said on Sunday.
CCS technology captures carbon emissions from power plants before they enter the atmosphere and then stores them in long-term storage sites.
The British government has included CCS technology in its plans to meet its emissions reduction targets and says it has earmarked 1 billion pounds ($1.59 billion) to fund a commercial scale pilot CCS program.
One EU source speaking on condition of anonymity confirmed that no British projects had qualified for the so-called NER300 competition "because of lack of funding detail."
Britain's Department of Energy and Climate Change (DECC) said it had not yet been informed of the decision or what the arrangements might be for the second round.
"We are not going to comment on speculation or rumors," a DECC spokesperson said.
The European Commission, together with the European Investment Bank and EU member states, jointly operate the NER300 financing competition in which governments can shortlist renewable and CCS projects for European subsidies.
EU member states can apply for NER300 funding to finance half of a renewable or CCS project if the national government guarantees funds to cover the remaining 50 percent of the costs.
A second round of projects will be launched early next year and British projects will be able to participate again, the EU source said.
Chris Davies, a British Liberal Democrat politician who led discussion of the funding in the European Parliament, said the failure was "a devastating blow" to hopes of Britain and Europe becoming a world leader in the development of CCS technology.
"The government has no excuse. The EU funding mechanism was only introduced as a result of British pressure and for us not to take advantage of it is simply woeful," he said.
Although proven to work technologically, CCS is a controversial technology because it has not yet been tested at commercial scale and is considered to be expensive since it adds to the cost of electricity generation without adding a value beyond emissions reductions.
Under the NER300 initiative, 300 million EU emissions allowances - which are rights to emit one metric ton (1.1923 tons) of carbon dioxide - on the EU European Emissions Trading Scheme were made available to raise financing for installations of innovative renewable energy technologies and carbon capture and storage, or CCS.
The initiative plans to sell the 300 million allowances in two rounds. The sale of the first tranche of 200 million allowances was completed on 28 September 2012, with a second NER300 tranche of 100 million allowances next year.
The European Investment Bank said that it wants the second round of sales to be completed by the end of 2013.
One allowance is valued around 8.30 euros ($10.55) per metric ton, exchange and broker data on Reuters shows.
Details of the Britain's list of CCS projects shortlisted for NER300 funding can be seen under: http://www.decc.gov.uk/en/content/cms/news/wms_ccs_ner300/wms_ccs_ner300.aspx ($1 = 0.6286 British pounds) ($1 = 0.7868 euros)
(Editing by Elaine Hardcastle)