The Turnbull government will test support for coal in Parliament by introducing changes that would allow the green bank to invest in carbon capture and storage technology if it cuts pollution by at least half.
Environment and Energy Minister Josh Frydenberg said the Clean Energy Finance Corporation [CEFC] would have its mandate expanded so it could back fossil fuel power plants that include the technology, sometimes described as "clean coal".
The technology, which involves capturing the emissions at the source and burying them underground, was explicitly banned when the CEFC was set up under a Labor-Greens agreement in 2011.
The $10 billion CEFC supports projects that reduce emissions from a technology by at least 50 per cent. Mainly focusing on renewab'le energy, it has consistently delivered a return to taxpayers.
Mr Frydenberg told reporters that carbon capture and storage could cut emissions from fossil fuels by up to 90 per cent.
He said it was banned under a "political fix" between former prime minister Julia Gillard and then-greens leader Bob Brown that also stopped the CEFC from supporting nuclear power. It was at odds with the public position of several senior Labor MPs, including treasury spokesman Chris Bowen and former climate change minister Penny Wong.
"This is proven technology - technology that should be made to work here in Australia to reduce emissions and help us meet our Paris targets," Mr Frydenberg said.
He said there were 17 successful projects across the globe, storing about 30 million tonnes of carbon dioxide a year. To put that in perspective, Australian annual emissions alone are about 550 million tonnes.
The technology depends on local geology, and has proven prohibitively expensive. A $2.4 billion carbon capture and storage flagship program announced by the Rudd government in 2009 yielded little and was gradually wound back before being discontinued under the Coalition.
Mr Frydenberg cited both the UN's Intergovernmental Panel on Climate Change and the Paris-based International Energy Agency as having said carbon capture and storage would be important in meeting targets to limit climate change.
The change would not mean CEFC support for modern coal plants without carbon capture and storage, which some senior members of the government have described as "clean coal" and argued should have public support. Resources Minister Matt Canavan, in particular, has floated the possibility of the CEFC being allowed to support coal plants with emissions higher than would be allowed under the change proposed.
Labor climate and energy spokesman Mark Butler said the CEFC announcement was "nothing more than the latest stunt from a government unable to effectively deal with the energy crisis under its watch".
He said the technology remained at the research and development phase and it was highly doubtful projects would meet the CEFC's commercial investment mandate if the legislation changed.
Greens climate and energy spokesman Adam Bandt said the announcement showed the government would pursue a "sickening obsession with coal, no matter what the cost". "Even coal-obsessed Donald Trump is cutting funding for this wacky idea," he said.
Mr Frydenberg said the proposed legislative change showed the government was committed to a technology neutral, non-ideological approach to energy policy.
Fairfax Media understands the CEFC has recently considered whether carbon capture and storage could be included as part of its investment portfolio. If the legislation, were changed it is expected commercial backers would need to take on the bulk of the risk in order to win CEFC support. A source said it meant that any projects that went ahead were likely to be small.???
Not all carbon capture and storage projects have been connected to power plants. Mr Frydenberg said a Gorgon liquefied natural gas project in Western Australia would soon become one of the world's largest uses of the technology, sequestering up to 4 million tonnes in the next year.
