Scottish and Southern Energy (SSE) and Shell have confirmed that they will be working together to develop a carbon capture and storage (CCS) project with flue accessories.
The facility will be capable of capturing CO2 from SSE's Peterhead Power Station, before distributing and storing it in Shell's Goldeneye offshore geological structure in the North Sea, though this move is still subject to funding.
Paul Smith, SSE's managing director for generation, said: "For more than six years, we've thought that Peterhead represents the best site in the UK for a gas CCS project. Our co-operation with Shell strengthens this proposition even further."
The C02 will be captured from one of the combined cycle gas turbine units at SSE's plant.
In Scotland, an extra £103 million has been allocated to fund renewable energy projects, after an announcement by British chancellor George Osborne.
This extra funding will be provided from the fossil fuel levy, which is paid by all firms that supply non-renewable energy sources.