Chris Huhne wins £1bn funding for carbon capture technology

Funding is half the sum originally requested but allays fears the coalition would drop costly commitment altogether

The energy secretary, Chris Huhne, has won a battle to secure £1bn from the Treasury to pay for the development of demonstration technology to capture and bury carbon emissions from power plants.

Although only half the sum requested by the Department of Energy and Climate Change (Decc), it allays environmentalists' fears that the coalition would drop the costly commitment altogether.

There is less good news for another plank of the green economy: the Treasury has apparently squeezed proposals for a green investment bank. Huhne wanted £6bn in public money to set up a bank – which was announced by the last Labour government and was a Tory manifesto commitment – that can unlock private sector funds by encouraging investment in risky green technologies.

It now seems likely that £2bn of money largely already pledged by the government for green projects will be corralled into a watered-down green fund. "It will look like a chunky announcement, in reality most of the money is there but it's being brought into one place," said an adviser to Decc.

In other spending areas there is mixed news, according to government sources:

• A 10% increase in money for nuclear decommissioning.

• £400m for the proposed renewable heat incentive for small-scaleprojects such as ground-source heat pumps.

• £60m funding to upgrade north-eastern ports critical for the go-ahead of factories building blades for wind turbines.

• A 10% cut to so-called feed-in tariffs – the subsidy for small renewable projects such as solar panels on houses.

The coalition hopes the package will help the prime minister in his claim to lead the "greenest government in history" and help the Lib Dems recover from their low poll rating. A recent YouGov survey showed threequarters of Lib Dem voters wanted clean energy spending protected or increased.

Developing carbon capture and storage (CCS) is seen as a vital step towards crafting an energy sector that will help Britain meet its legally bound target for reducing greenhouse gas emissions over the next 20 years. But the project requires up-front funding and there had been fears that the project would lose out in the comprehensive spending review on Wednesday. The Tory climate minister Greg Barker said in a speech last month that some "very good [low carbon] projects" would have to be scaled back.

Huhne is said by sources close to the process to have fought a tough fight to clinch extra funding. Despite joining the star chamber at the end of September – normally allowed once cabinet ministers settled their department's budgets with the Treasury – he battled right up until the close of play on Friday for key gains. He was supported by two Conservatives – the Cabinet Office minister, Oliver Letwin, and the junior Decc minister and former Tory treasurer, Lord Marland.

The Treasury will transfer the funds to Decc from the sale of assets, which surprised officials who expected all proceeds from asset sales to go towards paying down the deficit.

A party source said: "Chris fought really hard on CCS. He has not got all the money he wanted – only half that he argued for – but bear in mind the Treasury weren't going to give him anything."

Huhne has taken a serious hit on his programme budget. Warm Front, which provides grants for insulation and heating for the less well off, will get "slashed pretty bad" one observer said. There will be increased social price support - going from nothing presently to £300m - which will help reduce bills for poorer customers but it is unlikely to compensate for the upset caused by bringing an end to the programme and the Lib Dems expect to be attacked by Labour.

The original plan was for the UK to have four CCS demos, and there are still doubts about how the rest will be funded. The coalition had supported the Labour government's plan for four CCS demos but industry insiders had been concerned they would not go for a levy on bills to fund the remaining three because it would end up having to count towards the government expenditure tally. This appears to remain the case.

Other gains made by Huhne will – barring last-minute changes – include protecting the budget for nuclear decommissioning which, far from being ring-fenced as had been the original intention, was the target of Treasury cuts. Instead Huhne has secured an increase from £2bn to £2.2bn. There will also be the necessary funding to enable a £60m upgrade of ports in the north-east to go ahead, supporting multinational companies in locating windfarm factories nearby – something they couldn't do without the port upgrade.

The environmental community will be displeased that the government is to cut the subsidy to people sending their own energy back to the grid. It is not clear when the 10% reduction will come into effect.


Allegra Stratton and Juliette Jowit

The GuardianTramp

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