Japan’s Kawasaki Heavy Industries will use a power station owned by top Australian electricity producer AGL Energy for a trial of coal-to-liquid hydrogen conversion, the companies and Australia’s conservative Liberal-National government has announced.

If successful, the companies said they would build a facility in the state of Victoria at AGL’s massive Loy Yang coal-fired power station, Australia’s biggest, although the project drew immediate criticism from environmentalists.

Reuters Newsagency reports success could also establish a new export industry for the country, extracting hydrogen from coal then converting it to liquid for export to Japan.

The trial comes amid a long-running clash between AGL and the Australia’s LNP government over energy policy.

AGL wants to close coal-fired power stations and become a 100 per cent renewable energy firm by 2050, while the conservative government wants to reinforce a secure baseload energy supply following a string of major blackouts in recent years.

Meanwhile, Japan is keen to develop new clean energy sources amid uncertainty about its future use of nuclear power in the wake of the March 2011 disaster at the Fukushima Daiichi nuclear power plant.

“It is critically important that we invest in the energy sources of the future and we effect the transition from older forms of generation to new forms of generation and we do so seamlessly,” said Australia’s Prime Minister Malcolm Turnbull, speaking at the Loy Yang site in south-eastern Victoria.

Mr Turnbull said his government was contributing $50 million to the trial, which would create 400 local jobs.

Reuters reports the companies involved in the project did not disclose details of their own investment.

However, green lobby group Environment Victoria rejected claims the project would promote clean energy.

“Japan doesn’t want dirty hydrogen.

“They want clean hydrogen but today’s announcement simply creates a plant that will lock-in dirty hydrogen,” Environment Victoria campaigns manager Dr Nicholas Aberle said in a statement.

Engineering group Kawasaki Heavy has been keen to tap the coal-to-liquid hydrogen market and has been looking at using brown coal from Victoria, where supplies are plentiful.

However, it has hedged its bets with a project in Norway to derive hydrogen, using power from hydroelectric dams and eventually wind farms.

Using Australian coal requires removing its climate-changing carbon and burying it in old oil or gas wells there.

For the trial, Kawasaki Heavy has also teamed up with Japan’s Marubeni, J-Power Systems and Iwatani.

“The global hydrogen market is booming,” said Kawasaki Heavy’s Eiichi Harada, Deputy General Manager of the firm Corporate Technology Division, in a joint statement released on behalf of the companies involved.

The project “has the potential to deliver a critical option for future global energy needs”, he said.

If the pilot is successful, the project would enter its commercial phase in the 2030s, according to the statement.

The project is a “major turning point for carbon capture storage (CCS) in Australia by securing jobs, sustaining communities, and paving the way for a global hydrogen economy that combats climate change,” the Global CCS Institute said.