The government was yesterday urged to embrace Californian-style emission standards for new power stations as a means of encouraging investment in carbon-capture systems.

The recommendation forms part of a major new report from centre-right think tank The Policy Exchange which claims that the UK's potential as a global hub for carbon capture and storage technologies was being squandered as a result of "woefully inadequate" government incentives.

The report recommends that the government imposes emission standards similar to those being considered by the EU for car exhausts on all new power stations. It claims that such standards would "eliminate coal without CCS and gradually tighten to ensure all power stations are fitted with CCS by 2020".

Coal-fired power stations emit about 850kg of CO2/MWh, but the report recommends that from January next year all new fossil fuel power plants should have average annual emissions of no more than 350kg CO2/MWh – a level the report claims would "eliminate new-build coal with no CCS, but would still enable unabated gas plants to avoid electricity shortages".

The proposed limit – which was endorsed by Greenpeace, WWF, Friends of the Earth and the RSPB – could then be tightened from 2015 to 170kg CO2/MWh or better for coal and 70kg CO2/MWh for gas, which would effectively require CCS to be fitted for both coal and gas stations.

Robin Oakley, head of the climate campaign for Greenpeace UK, said that such standards would prevent the UK being locked into another generation of carbon-intensive power plants. “Standards such as this already exist in California, ensuring that coal plants such as Kingsnorth cannot be built," he said. "This standard would focus investment on implementing the real solutions to climate change and energy security – energy efficiency and renewable energy.”

Keith Allott, head of climate change at WWF-UK, agreed that emission standards would also provide a legal guarantee to back up government claims that CCS systems would be more widely adopted in the future. "Building new coal stations now without even the flimsiest of guarantees that full-scale CCS would ever be fitted is a reckless gamble that neither the climate nor the taxpayer can afford," he argued. "An emissions performance standard would head off this risk, reinforce the EU emissions trading scheme and help put the UK on the path to a truly sustainable energy system."

Alongside the introduction of new standards the report also calls for the introduction of incentive mechanisms that would make the installation of CCS technologies commercially attractive.

It suggests delivering these incentives by giving the carbon saved via CCS a carbon price at the same level as that given to other low-carbon sources of energy, either by incorporating CCS in the renewables obligation incentive mechanism, introducing a feed-in tariff that guarantees an above-market price for power generated at plants with CCS fitted, or providing firms with carbon credits for the carbon they store.

"We need an electricity market which enables this new industry to see a fair price for decarbonised electricity, take risks, grow rapidly, and build not one, but a suite of clean power plants in the UK," said report co-author Professor Stuart Haszeldine of the University of Edinburgh.

The government has been vocal in its support for CCS, however, to date there are plans for just one £1.5bn demonstration project – the contract for which is to be awarded by the Department for Business, Enterprise and Regulatory Reform (BERR) following completion of the competition process.