MARK COLVIN: There’s a new project proposed for Victoria’s Latrobe Valley.

The idea is to take one of Australia’s dirtiest energy resources, brown coal, and turn it into oil.

Converting coal into oil produces more CO2 emissions than regular petrol.

Energy consultants and environmentalists are critical of this new plant as a retrograde move away from alternative fuels.

But supporters say the technology could eventually produce nine per cent of Australia’s fuel requirements and add $15 billion to the national economy every year.

Jess Hill prepared this report.

(music plays: ‘Miner’s Prayer’ by Dwight Yoakam)

JESS HILL: Victoria sits on top of 25 per cent of the planet’s brown coal.

LEN HUMPHREYS: Our technology can turn one wet tonne of brown coal into one barrel of oil. So you’re turning an abandoned orphan resource into a mainstream energy product that could lead to national fuel security, you know just from what’s in the Latrobe Valley.

JESS HILL: That was Len Humphreys, the chief executive of Ignite Energy Resources.

Earlier this week, Ignite announced a partnership with mining company TRUEnergy to turn brown coal from Victoria’s Latrobe Valley into oil.

From 2010, the companies plan to produce 60,000 barrels of oil a year. But according to Len Humphreys, the potential is far greater than that. He says Victoria has enough coal to produce more oil than all of the Middle East put together.

But using coal to produce oil is controversial. According to the science journal Nature, the conventional process of extracting the oil produces 98 per cent more CO2 emissions than conventional petrol.

Bob Gordon is the executive director of Renewable Fuels Australia.

BOB GORDON: How are they going to successfully handle the emissions? It’s just difficult to come to grips with even why we’re going down this path.

JESS HILL: The proponents say the new plant employs a different process which reduces the CO2 emissions produced.

Victoria’s Energy and Resources Minister Peter Batchelor is enthusiastic about the project.

PETER BATCHELOR: We’re very keen to make sure that there is new investment in the Latrobe Valley. It’s going to be an area that’s going to be impacted by the introduction of the Carbon Pollution Reduction Scheme, and for its economic future we need to see the continued use of brown coal in a much more environmentally friendly way.

JESS HILL: A spokesman for the Federal Minister for Resources and Energy, Martin Ferguson, told PM that the proposal seemed to be driven by an interest in raising share prices, and that the slick PR campaign did not provide sufficient detail on its methods.

Advocates of liquefied coal point to carbon capture and storage as a way to minimise the greenhouse gas emissions produced during the conversion process. This technology however is still being developed.

Critics say it will be difficult for the Victorian Government to reduce its carbon footprint and support projects like this at the same time.

Dr Hugh Saddler is the managing director of Energy Strategies, a consulting firm that provides energy advice and analysis to government.

HUGH SADDLER: On the one hand they’re always talking about reducing their emissions. If they start burning more brown coal for these sort of things it will be extremely difficult to do that.

Really, if we’re serious about cutting greenhouse gas emissions, we can’t afford to use this stuff. We’ve got to think about what our low emission energy system is going to look like, and what role the Latrobe Valley with all those skilled workers and the infrastructure can be used for in the context of the energy system we need to move towards.

MARK COLVIN: Hugh Saddler, managing director of Energy Strategies, ending Jess Hill’s report.