Norway's Statoil and Anglo-Dutch Shell said the plan, due to start in 2010-12 and including construction of a gas-fired power plant in west Norway, would need "substantial government funding and involvement".

"If we succeed, this technology can be used at other fields off Norway and internationally," Statoil Chief Executive Helge Lund told a news conference.

Under the scheme, Statoil would capture CO2 from a huge, 860-megawatt gas-fired power plant to be built at the company's Tjeldbergodden methanol complex in mid-Norway.

The CO2 would then be piped to Shell's Draugen oilfield off Norway - and later also to Statoil's Heidrun field - and injected into subsea reservoirs, to force oil to the surface.

Lund estimated that the plan, which could bury 2-2.5 million tonnes of heat-trapping carbon dioxide a year, would cost 8-10 billion Norwegian crowns ($1.19-$1.49 billion).

Building the power plant would cost 4-4.5 billion crowns, and the CO2 capture system and pipelines similar amounts.

Lund declined to say how much the government should pay. Many other firms have been put off by high costs of similar CO2 storage projects, which could help slow global warming.

Environment Minister Helen Bjoernoy praised the plan as a "showcase for Norway as an environmentally friendly technology nation". But she did not say how the government would help. Norway's trade unions welcomed the plan.

ENHANCED OIL RECOVERY

"This is an important milestone for Shell towards our vision for greener fossil fuels with part of the carbon dioxide captured and sequestrated underground," Chief Executive Jeroen van der Veer said in a statement.

If things go as planned, a final decision to invest could be made by the end of 2008, the power plant started in 2010-2011 and the first CO2 delivered to Draugen in 2011-2012, Lund said.

CO2 from burning fossil fuels is the main gas blamed for blanketing the planet and driving up temperatures, threatening more droughts, floods, heatwaves and raising sea levels.

Soaring CO2 emission permit prices have added incentive to tackle the problem. "In principle, the higher the price of CO2, the more intensively you have to address this issue," Lund said.

"The dilemma in the world today is that we have increased energy demand, and for the foreseeable future (oil and gas) have to cover that," he said. "There are some negative impacts of that, including CO2, and industry is part of that problem so we have to take an offensive approach to address that."

Many other oil companies are also looking at ways to cut carbon emissions. Schemes for capturing and storing at least a million tonnes of CO2 a year are already operating in Canada, Algeria and Statoil's Sleipner field off Norway.

In Texas, about 30 million tonnes a year is injected to help boost oil recovery at onshore fields under schemes that started in the 1970s before climate change was a worry.

Use of natural gas in power plants is welcome in many countries as a cleaner alternative to dirtier coal or oil. But it is controversial in Norway, which generates almost all its electricity at non-polluting hydropower plants.

Norway, the world's number three oil exporter behind Saudi Arabia and Russia, is also running out of rivers to dam and needs to raise electricity output to meet growing demand. The gas-fired plant would help avert a power shortage in the region.