Controversial plans to build a major coal-fired power station in Ayrshire using unproven “clean coal” technology have been abandoned, to the delight of environmental campaigners.

The developers, Ayrshire Power, blamed their unexpected decision to withdraw plans for a new 1852MW carbon-capture power station at Hunterston on the recession and anxieties about winning funding from the government and European commission.

Their announcement, just days after the dates for a public inquiry into the project were agreed by a Scottish planning inspector, is another blow to the UK and Scottish government’s attempts to promote carbon capture and storage (CCS) as a centrepiece of their efforts to combat climate change.

Several major pilot projects, including a £1bn scheme to retrofit CCS at Longannet power station in Fife, have been cancelled in the last few years because of doubts over their financial and technical viability. Some are still under consideration for EU and government funding, including one recent proposal to build a CCS project at Peterhead by the energy firms SSE and Shell.

In 2009, the Danish power giant Dong Energy announced it was pulling out of the £3bn Hunterston proposal, leaving its main backer, the Manchester-based property firm Peel Holdings, to run the scheme without a power company as a partner in the consortium.

The Ayrshire Power project, which had yet to get approval, had the reputation of being the most controversial proposal in Scottish planning history. Despite initially backing the proposal, Alex Salmond, the first minister, and his devolved government distanced themselves from the scheme.

More than 22,000 objections were sent to the Scottish government after environmental campaigners, residents and major civic organisations, such as the Church of Scotland and Oxfam, mounted a vigorous campaign of opposition.

Richard Dixon, the director of WWF Scotland, said Ayrshire Power’s plans to use experimental “clean coal” technology on only part of its output at first, for about 22% of its emissions, were unacceptable, and would put Scotland’s efforts to cut CO2 emissions by 42% in a decade under severe strain.

“With the local community and North Ayrshire council against it, 22,000 objections and no chance of winning the public inquiry, walking away was the only sensible option,” Dixon said.

“This was always the wrong application in the wrong place. Scotland has huge renewable energy resources and several promising sites to try out carbon capture. The last thing we need is a new coal-fired power station hiding behind a green figleaf. Let’s hope this proposal never sees the light of day again.”

Aedán Smith, head of planning at RSPB Scotland, said: “This is absolutely fantastic news. This unnecessary and hugely unpopular proposal would have completely destroyed part of a nationally important wildlife site and seriously undermined Scotland’s ambitions to be a world leader on climate change.

“Although it is disappointing that any developer would even consider such a damaging proposal, we are pleased that Peel have finally recognised the absurdity of these plans and made a sound decision that will save everybody the further time and expense of fighting them.”

In a statement issued late on Tuesday afternoon, Ayrshire Power said it had withdrawn its planning application, effectively cancelling the public inquiry. The firm said it could resubmit its plans in the future. It claimed the scheme could have stored 1bn tonnes of CO2 by 2050.

Muir Miller, Ayrshire Power’s project director, said: “Whilst we believe we have a strong case to succeed in the planning inquiry, we cannot proceed with the significant risk that the current power station design and fuel mix could not be funded and built in the necessary timetable following the grant of consent.

“We still believe that new coal-fired power stations fitted with carbon capture and storage will play an important part in plugging the energy gap until alternative sources of low-carbon energy can replace fossil fuels.

“Hunterston remains an ideal location for such a power station. However, the timing of the economic slowdown and funding uncertainty have not worked in our favour. We will now take some time to consider our options and determine under what circumstances we will revisit our proposals.”

The Scottish government appeared to be unperturbed by the announcement. Fergus Ewing, the Scottish energy minister, said it was a commercial decision and there were other schemes still in contention for the UK government’s £1bn in funding for CCS.

“The Scottish government strongly supports CCS as a critical new technology to transform the way we generate power, help reduce carbon emissions and ensure security of supply,” he said.

“Scotland also remains well-placed to take a lead in the development and commercialisation of CCS. With more than half of Europe’s identified offshore CO2 storage capacity, the central North Sea off the coast of Scotland is the natural choice for enabling CCS.”