Government research body CSIRO said the milestone followed the Garnaut Report's recognition that Australia had a role to play in developing low emission coal technologies, such as PCC.
"Coal is the primary fuel for over 80 percent of Australia's current power supply, it is what turns the lights on in most homes, so we need to find a way to make it a cleaner energy source," CSIRO energy technology chief David Brockway said.
"PCC uses a liquid to capture CO2 from power station flue gases and can potentially reduce CO2 emissions from existing and future coal-fired power stations by more than 85 percent."
The 10.5m high pilot plant is designed to capture up to 1000 tonnes of CO2 a year from Loy Yang's exhaust-gas flues.
CSIRO is undertaking more PCC research at Munmorah near New South Wales and Beijing, China and is also negotiating another pilot plant at a Queensland site.
"Climate change is a key issue for Australia and we're delighted to be part of finding a solution to this global challenge," Loy Yang power chief executive Ian Nethercote said.
The pilot plant at the Loy Yang power station in Victoria's Latrobe Valley is a collaboration between Loy Yang, International Power Hazelwood, CO2CRC and government researchers from CSIRO.
