In addition to the loss of skilled jobs in Fife, the decision means the UK will miss the opportunity to lead the world in the development of CCS technology.
Prospect negotiator Jim Cooper said the design at Scottish Power's coal-fired plant would have provided a model for retro-fitting to coal and gas power stations around the world. Longannet was also the only remaining site in the government competition for up to £1bn of funding to develop CCS technology. Crucially, it had succeeded in providing a blueprint for a functioning commercial model.

Contract confidentiality means the full facts as to why the negotiations broke down may never be known. But it is understood that the total cost of the project was £1.6bn. The introduction of the carbon floor tax probably made Iberdrola, Scottish Power's Spanish owners, less inclined to spend any more money on a coal-burning power station, Cooper said.

"On top of that the government was insisting on the company committing to a 15 per cent contingency fund over and above the project costs, and a further £300m to cover cost overruns."

Despite the energy secretary's claim that a billion pounds is enough to demonstrate this new technology in the UK, the end-of-negotiations problems Scottish Power encountered could easily resurface for any of the remaining four CCS projects the government says it will fund.

After the Longannet announcement the Department of Energy and Climate Change trumpeted the launch of a flagship test CCS programme at Ferrybridge coal-fired power station.

Worth more than £20m, the project is a partnership between Scottish and Southern Energy, Doosan Power Systems and Vattenfall. But unlike Longannet, Ferrybridge is not on a commercial scale.