The UK's first carbon capture and storage project must be operational by the mid-2020s, according to ministers.
A commitment to develop the technology, which stops greenhouse gases entering the atmosphere, was made ahead of a summit in Edinburgh.
Research funding has also been announced for a carbon capture scheme in Aberdeenshire.
It will see the carbon dioxide piped to storage sites under the North Sea.
Experts say the technology is a major tool in tackling climate change.
The UK government was criticized in 2015 after a £ 1bn pound competition to carbon capture and storage was dropped.
Power stations at Peterhead in Aberdeenshire and Drax in North Yorkshire were the final contenders for the grant.
Energy and Clean Growth Minister Claire Perry said: "Today at this seminal summit, the UK is setting a world-leading ambition for developing and deploying carbon capture and storage technology to cut emissions.
"It shows how determined all countries are to unlock the potential of this game-changing technology that representatives from across the globe are gathered here today in Edinburgh."
The Acorn Project will capture about 200,000 tonnes of CO2 from the St Fergus Gas Terminal near Peterhead and transport it for storage to one of three depleted gas fields using existing pipelines.
It is to receive £ 175,000 from the UK government, with match funding from the Scottish government and additional European funding.
In additional phases, the project could generate hydrogen from North Sea gas and store the carbon dioxide, which the process creates as a by-product. The hydrogen could then be used to heat people's homes.
Existing onshore pipelines could also be utilized to transport CO2 for storage from areas of heavy industry around Grangemouth.
Project leader Alan James said: "Scotland can use legacy oil and gas assets to deliver environmental benefits, unlocking CO2 transport and storage solutions for other carbon capture utilization and storage projects along the east coast of the UK and in future from Europe.
"With the right support, Acorn CCS could be operating in the early 2020's, making a substantial contribution to both UK and European emission reduction targets and helping to establish a commercially viable future for CCUS investment."
The UK government said it would set out more details about how it plans to develop the UK's first Carbon Capture, Use and Storage (CCUS) facility.
It said it would invest £ 20m in technology at across sites including Teeside and Drax.
Dr Fatih Birol, from the International Energy Agency (IEA), said: "Without CCUS as part of the solution, reaching our international climate goals is practically impossible.
"CCUS can also enhance energy security and boost economic prosperity. Yet up until now, progress has been muted and if this continues to be challenges we face in the energy sector will become infinitely greater.
Next week, world leaders will gather in Katowice, Poland, for the 24th UN Climate Conference where they will discuss the implementation of the aims of the Paris Agreement.
The accord commits nations to limit global temperature rises to "well below" 2C and many consider CCS as an important way to achieve that goal.
'Rationale has disappeared'
Scotland's Energy Minister Paul Wheelhouse said: "We believe Scotland is in a unique position to put this technology on an industrial scale.
"In addition, the opportunity to re-purpose key existing pipeline infrastructure assets in Scotland provides the most cost effective pathway to the deployment of CCUS."
Dr Richard Dixon, director of Friends of the Earth Scotland, said that as Scotland's two coal-fired power stations were closed now "the main rationale for CCS in Scotland has disappeared."
He adds: "Instead of chasing something we do not need the UK government to spend its money on renewable energy, energy efficiency and energy storage, all of which deliver immediate reductions in carbon emissions.
"There might be a role for CCS in relation to industry in the long term but with the fossil cars being phased out and a crack down on the mountains of plastic we use, even these sources of carbon will decline in the coming decades."