The additional $13 million will extend the demonstration phase of the Callide Oxyfuel project in Biloela, central Queensland, by 15 months to November 2014, the government said in a statement.

The funding will, along with $9 million provided by the Australian coal industry and almost $5 million by a Japanese consortium of industry and government, bring the full investment for the extension to $27 million. The investment will total about $231 million by its completion.

The latest funding will allow the carbon and capture (CCS) project to achieve the 10,000 cumulative operating hours typically needed to demonstrate the feasibility of new technology in the industry.

“The extension provides stakeholders with greater commercial confidence in the proposed technology, and allows the project team to meet its CCS objectives, including storing some of the captured carbon dioxide,” Martin Ferguson, Minister for Resources and Energy, said.

Oxyfuel is one of several "capture" technologies being developed around the world, aimed at limiting fossil-fuel emissions of carbon dioxide, a greenhouse gas that most scientists say is contributing to a warming atmosphere.

The oxyfuel technology being tested at the small 30 megawatt power plant in Queensland involves burning the coal in a mix of oxygen and flue gases, creating an almost pure carbon dioxide stream that can be trapped and potentially stored.

Capturing and storing carbon dioxide, though, requires energy, with oxyfuel methods currently used requiring almost a third of the capacity of the power plant they are deployed on.  Without a hefty price on carbon, the ventures may not be commercially viable.

Mr Ferguson said CCS projects like Callide "may help Australia meet our long-term emissions reduction targets with the least cost to the economy.”

The project's partners -  the Australian Coal Association, the Japanese government and Japan's J-Power, Mitsui and Co. and IHI Corp. - will also contribute to the extension of the demonstration.