The government's plans for carbon capture and storage (CCS) technology took a leap forward yesterday with the launch of a consultation on the regulatory framework that is to govern such plants and the release of the shortlist of companies vying to build the UK's first demonstration plant.

BP Alternative Energy International Limited, EON UK Plc, Peel Power Limited and Scottish Power Generation Limited were selected from nine contenders and will now enter detailed talks with the government over the technical, commercial, contractual and financial issues pertaining to the project.

The Department for Business Enterprise and Regulatory Reform (BERR) said the project was still on track to deliver an operational commercial-scale CCS plant capable of capturing more than 90 per cent of carbon emissions from a coal-fired power station by 2014.

The shortlist was released as BERR also unveiled a consultation document setting out the legislative framework that will govern the new technology.

In particular, the consultation will attempt to address confusion over the term "carbon capture readiness", which has already prompted energy giant E.ON to request that the government delay its decision on whether to grant approval for the company's proposed new coal-fired power station at Kingsnorth.

The government has said that it will only grant approval to large-scale fossil fuel power plants if they display "carbon capture readiness". However, a spokesman for E.ON said that while the company was confident it knew what was meant by the term, the absence of an official definition could leave any project open to "argument and review".

Now the government has attempted to tackle the problem through its new consultation, requesting feedback on the definition of the term.

The consultation document, entitled Towards Carbon Capture and Storage, also asks for views on what more can be done to promote and deploy CCS in the UK, the EU and globally.

Business secretary John Hutton said the UK was also working with other countries to ensure that CCS projects are included in existing carbon reduction incentive mechanisms such as the EU's Emissions Trading Scheme and the UN's Clean Development Mechanism – a move that would allow investors in CCS projects to generate revenue by selling carbon credits. "[We] have been pushing hard for it to be high on the agenda at the forthcoming G8 Leaders meeting," he added.

A spokesman for E.ON welcomed the move, claiming that any means of strengthening the economic case for investment in CCS would be welcome. " Coal-fired power stations are very expensive to build and coal-fired power stations with CCS are incredibly expensive to build," he said. "Anything that helps the economics of these projects is a good thing."

His comments were echoed by Dr Jeff Chapman, chief executive of the CCS Association, who argued that CCS will "only develop within a robust regulatory framework and with clear investment incentives".

He also urged the government to step up its plans for the technology, arguing that it should be looking to deliver more than one demonstration project. "The government must now work to ensure there is a tranche of CCS demonstration plants in operation by 2013-2015," he said. "Which means sanctioning investment in these plants within the next year."