
A 30-tonne test unit will process 1,000 cubic metres of exhaust gas per hour from Longannet power station in Fife.
Carbon dioxide will be removed using chemicals and turned into a liquid, ready for storage underground.
Iberdrola Chairman Ignacio Galan said: "We believe that the UK can lead the world with CCS technology, creating new skills, jobs and opportunities for growth.
"There is the potential to create an industry on the same scale as North Sea Oil, and we will invest in Scotland and the UK to help to realise this potential."