UK power generator Drax has pulled out of a carbon capture and storage (CCS) project after company profits were severely hit by “critical reversals” in the British government’s green policies, the Financial Times reported late Thursday.

Speaking to the paper, Peter Emery, the Drax board member chairing the Capture Power consortium developing the project dubbed White Rose, said concerns over future support from the ruling Conservatives for low-carbon initiatives had also dented investor confidence.

“The government has to make difficult decisions based on affordability and, in turn, so are we,” Emery added, referring to recent cuts in subsidies for solar and wind power installations that UK Secretary of State for Energy and Climate Change Amber Rudd said were needed to protect British consumers.

The government also in July announced that low-carbon power producers will no longer be exempt from the UK Climate Change Levy, knocking more than a quarter off the price of Drax shares that day.

The White Rose project is also being developed by France’s Alstom and the BOC industrial gas group, and involves building a 450-megawatt coal-fired plant in Yorkshire, next to Drax’s existing power station at the site. The new installation would be capable of burying 2 million tonnes of CO2 annually, or 90% of its emissions, into a depleted gas field in the North Sea.

The two companies said they were committed to completing the project.

The UK government has put up £1 billion to support the technology, which has been bid for by White Rose as well as Shell’s Peterhead gas project

A third CCS project in manufacturing hub Teesside, backed by four industrial firms including Thailand’s SSI Steel and South Korean petrochemical manufacturer KP Chemical, could also in peril after SSI last week said it was halting its UK operations.

White Rose last year won a €300 million grant from the EU in the second round of its NER300 programme, in which 300 million EUAs that had been held for new entrants to the EU ETS were sold to raise cash for investment in renewables and CCS.

But the FT reported that White Rose’s future still depends on winning some of the £1 billion that has been up for grabs in the UK government competition since 2007.

Britain’s Department of Energy and Climate Change told the FT that the government was “committed to developing carbon capture in the UK”, and would continue to negotiate with the two remaining bidders (White Rose and Peterhead). A decision on the CCS competition is expected in early 2016.

CCS has been called a “silver bullet” in the fight against climate change, but the technology’s exorbitant cost and concerns over leaks have held it back.

As a result, there is currently just one commercial power station with CCS, located in Canada, though the project’s CO2 savings are undone as the gas captured is being used for enhanced oil recovery.

By Mike Szabo – mike@carbon-pulse.com