Identifying and developing potential geosequestration sites as well as establishing an 'ultra clean coal' demonstration plant - which it says could reduce CO2 emissions by 20-30% - will be the focus of the spending.

The NSW minerals council and the Australian Coal Miners Association commended the program, which also involves progressing research and development of carbon capture technologies, including coal gasification and post combustion capture (PCC) - a process for chemically removing CO2 from the flue gas of power stations.

Four preliminary studies are currently underway to identify potential CO2 storage sites, with the Darling Basin in central NSW showing “significant potential” for large scale storage in deep saline aquifers.

Of the government’s total funding, $1.9 million involves a freehold grant of land for UCC Energy to construction an 'ultra clean coal' demonstration plant at Cessnock.

NSW Premier Morris Iemma said the company’s technology, developed in conjunction with the CSIRO, would reduce greenhouse gas emissions by directly firing high purity chemically cleaned coal in gas turbines.

“An ultra clean coal powered station would produce substantially less greenhouse gas emissions than existing best plants in service in NSW and Victoria,” he said.

“Ultra clean coal fired plants on average could save an impressive 1 million tonnes of carbon dioxide from being pumped in to the atmosphere each year compared to conventional power adaptation.”

NSW minerals council chief executive officer Nikki Williams said the coal industry was committed to working with the government and power generators to develop low to near zero emission coal technologies.

“Coal producers strongly support a collaborative national effort with cooperation between states and between the states and the commonwealth,” she said.

“The NSW coal industry has already pledged up to $20 million to state government’s funding for the program through the COAL21 Fund.”