Deputy Prime Minister Nick Clegg and Climate Change Secretary Ed Davey said Shell will operate the facility, the first of its kind, in Peterhead.
The project, which is part of a $120 million government investment, would store carbon dioxide emissions under the North Sea.
Shell will retrofit a natural gas-fired plant at the site for CCS technology.
"The innovation of the U.K.'s energy industry is something we should be really proud of and the fact that we are a world leader in carbon capture and storage is a great example of our country's ingenuity," Clegg said in a statement.
Clegg said his government is committed to working alongside its Scottish counterparts to advance the region's low-carbon economy.
Scotland holds a referendum for independence from the United Kingdom later this year.
Davey told the BBC the CCS plant was planned "as if the U.K. is going to stay together."
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