Canada panel suggests $2 bln carbon capture plan

OTTAWA, Feb 1 (Reuters) - Canadian governments should spend C$2 billion ($2 billion) to encourage the capture and storage of carbon to reduce greenhouse gas emissions, a government-commissioned panel recommends.

The panel report, released late on Thursday, flags carbon capture as a way of curbing emissions while continuing to make economic progress, but the panel said it needs government help to get the idea off the ground.

"Canada possesses the technology, geology, and expertise to be a world leader in the development and implementation of CCS (carbon capture and storage) technology," the report said.

"But as with any new environmental technology, a financial gap exists between the cost of a plant with CCS and what would otherwise be built to produce the same industrial outputs."

The technology involves separating carbon dioxide from emissions from large industrial or energy-producing facilities. The carbon dioxide is then compressed and injected deep underground.

Conservative Prime Minister Stephen Harper set up the panel last year and named the president of Canada's biggest publicly traded electricity generator, TransAlta Corp's (TA.TO) Steve Snyder, as its chairman.

Harper, elected in 2006, has said Canada will not be able to meet its obligations under the Kyoto protocol on climate change without taking steps he said would cause economic havoc. He has instead looked largely to technological innovations which have yet to get off the ground in a large-scale commercial way.

The panel said the C$2 billion should help industry get three to five projects operational by 2015.

($1=$0.99 Canadian) (Reporting by Randall Palmer; editing by Janet Guttsman)