Shell has secured millions of pounds of funding from the British government for the next stage of its carbon capture and storage (CCS) project at SSE's Peterhead gas plant in Scotland, Shell and the government said on Monday.

The demonstration project, led by Shell with support from the plant owner SSE, aims to become the world's first large-scale CCS project at a gas-fired power plant.

"The government has agreed a multi-million pound contract for engineering, design and financial work on the Peterhead CCS project in Aberdeenshire," Ed Davey, Britain's Secretary of State for Energy and Climate Change.

"If built, the project could save one million tonnes of CO2 each year," he added.

CCS technology captures carbon dioxide emissions from power stations and other industrial sites. Once captured, the carbon dioxide is transported to formations deep underground such as depleted oil and gas reservoirs, where it is stored.

CCS has been proven to work in several small pilot schemes around the world but has yet to be operated commercially and at a large scale.

A study last week showed that schemes in the United States, Canada and China are approaching completion but Europe is lagging behind.

The British government wants to develop CCS to help it meet both national and international targets to reduce environmentally-damaging greenhouse gas emissions.

By 2050, CCS could save more than 30 billion pounds ($50 billion) a year in fighting climate change, it said.

The government is investing around 100 million pounds in two CCS projects in Britain - the Peterhead scheme and the White Rose project in Yorkshire, which is developing a new coal power plant with CCS. Financial investment decisions on the projects will be made by late 2015.

Scheduled to be operational by the end of the decade, Peterhead CCS aims to capture and store over 85% of the carbon dioxide emissions from one of the gas plant's three turbines. "The successful demonstration of the technology at Peterhead would be a step towards proving its commercial viability as a tool for mitigating climate change. It could also help diversify the North Sea oil and gas industry and so contribute to the sector's long-term commercial health," Shell said.