The UK government’s Dept of Energy and Climate Change has cancelled its £1bn competition for carbon capture and storage technology six months before it was due to be completed, as part of a 22% cut in the department’s budget.

The abandonment of a technology favoured by prime minister David Cameron and seen by the government’s own advisory body, the Committee on Climate Change, as vital in tackling global warming, will be an embarrassment to the UK, coming as it does immediately before the UN climate change summit in Paris.

Two projects had been in the running to build plants demonstrating CCS at commercial scale. One, at Peterhead, was backed by Shell and SSE. The other was the White Rose project based at Drax, the UK’s largest power plant, but its continuation has been in doubt since Drax halted its investment in September.

The government informed the London Stock Exchange of the decision with the statement "Following the chancellor’s autumn statement, HM government confirms that the £1bn ring-fenced capital budget for the CCS competition is no longer available. We will engage closely with the bidders on the implications of this decision for them."

Shell said the Peterhead project was now dead and its CCS work would be focused in other countries. "Shell remains committed to CCS – as our involvement in demonstration projects in other parts of the world shows – and we view it as an important part of a low-carbon energy future," said a spokesman. This is a reference to Quest, Shell’s flagship CCS project in Canada, designed to capture and permanently store more than 1 million tonnes of CO2 each year from its Scotford Upgrader oil sands processing plant. The governments of Alberta and Canada have invested significantly in Quest.

The UN’s Intergovernmental Panel on Climate Change has concluded that CCS is hugely important to tackling climate change in the most cost-effective way. Without CCS, the costs of halting global warming would double, it says. The Committee on Climate Change agrees. "CCS is very important for reducing emissions across the economy and could almost halve the cost of meeting the 2050 target in the [UK’s] Climate Change Act".