A group of energy companies has scrapped a $1.4 billion carbon capture and storage project, dealing a major setback to Alberta's efforts to reduce greenhouse gas emissions.

Project Pioneer, a joint effort by TransAlta, Capital Power, Enbridge and the federal and provincial governments, was expected to be one of the largest CCS facilities in the world, able to capture 1 million tons of carbon dioxide a year.

It was targeted to be operational in 2015.

The project in October 2009 was awarded funding, including $342.8 million from the federal government through its $1 billion Clean Energy Fund and its $27 million ecoENERGY Technology Initiative and $436-million from Alberta through its $2 billion CCS technology fund.

CCS is viewed as a critical step to reduce Alberta's carbon emissions, which are rising mainly due to oil sands development.

Project Pioneer was to be tied to Keephills 3, a recently commissioned coal--red generating plant west of Edmonton and was to be among the first worldwide to have an integrated underground storage system.

Pioneer said its decision follows the outcome of a feasibility study.

"Following the conclusion of the [feasibility] study, the industry partners determined that, although the technology works and capital costs were in line with expectations, the market for carbon sales and the price of emissions reductions were insufficient to allow the project to proceed," Pioneer said in a statement.

Still, Project Pioneer maintained that "we now know the technology works and we still believe there is a future for CCS."

"Our decision was essentially based on the fact that we could not see a way to make the economics of our CCS project work as we originally intended," Don Wharton, vice president of policy and sustainability at TransAlta, told the Edmonton Journal.

Chris Severson-Baker, spokesman for the Pembina Institute, noting that conventional coal-fired electricity plants such as Keephills 3 that Project Pioneer was to be connected with "are the dirtiest possible source of power" said that the scuttled project means that the plant will be operating without emissions limits until at least 2056.

"The reason for this failure is clear. Until the federal or Alberta governments implement policies that incentivize companies to capture their emissions or switch to cleaner sources of energy, those companies will continue to pollute with coal," he said in a statement.

Severson-Baker pointed to the International Energy Agency's annual progress report released this week that indicates that the world is on course for 6 degrees Celsius of warming because of inadequate climate change policies.

The Project Pioneer announcement "shows how much work Canada needs to do if it wants to help avoid that catastrophic scenario."