North Sea 'carbon capture' boost for coal reserves

He announced a new partnership with the Norwegian government which has pioneered the pumping of carbon dioxide from fossil fuel burning into exhausted oil and gas wells.

The technology of carbon storage - pumping carbon dioxide from coal-fired power stations into disused wells and saltwater aquifers - offers the possibility of "clean coal" power stations and actually enhances the efficiency of exploiting the last oil and gas reserves.

The chancellor said he had written to the European Commission calling for an urgent investigation into monopolistic practices on the Continent which could interfere with Britain's supplies of gas this winter.

Ofgem, the energy regulator, announced that it would use its powers to intervene where necessary to ensure that gas importers either "use or lose" their capacity to import.

The concern is that because of differences in Britain and the Continent over the way gas is priced there could be restrictions on imports of gas from Europe through the "interconnector".

The Government hopes that "carbon capture" could allow Britain to use its plentiful coal reserves without breaking its commitments to reducing carbon emissions under the Kyoto treaty while helping countries such as China and India, which have plentiful coal reserves, to burn coal cleanly.

China is expected to build 1,000 coal power stations over the next few decades. Norway and Britain will consider together whether the right level of incentives are available to companies to invest in the new technology. In Norway, oil companies have an incentive to participate because they pay a carbon tax.

Mr Brown announced extra funding of pounds 10 million for demonstration projects under the Department of Trade and Industry Carbon Abatement Technology Strategy and further support for microgeneration technologies through the extension of reduced VAT rates for the installation of wood-fuelled boilers.

He announced pounds 35 million of spending on energy efficiency grants to be given by the Carbon Trust.

Environmentalists criticised the Chancellor for not going further by cracking down on gas-guzzling cars, emissions from the new house- building programme or cheap flights, which presently pay no environmental taxes.