The Latrobe City Council is confident governments are willing to invest in cleaner coal technology, despite the withdrawal of funding for a new power station at Morwell.
In 2007, HRL was promised a conditional Federal Government grant of $100 million for a new brown coal drying and gasification plant.
However, on Friday, Energy Minister Martin Ferguson withdrew the funding.
The Victorian Government is also likely to withdraw its $30 million grant.
The Mayor of the Latrobe City Council, Ed Vermeulen, says he is disappointed the HRL project has lost government support.
"I think it was an excellent idea, it wasn't the perfect world solution but as an intermediate idea I think it was very much worthwhile," he said.
"There's no doubt the Government has faith in clean coal technologies and there are a number of possibilities, the Government has already made financial commitment to the future of coal in that sense."
Environment Victoria has welcomed the withdrawal of funding for the HRL power plant.
Campaign director Mark Wakeham says the technology being proposed by HRL was outdated and polluting.
He says the project is likely to be shelved because private investment will be difficult to attract.
"Well this was the most advanced proposal to build a new coal-fired power plant in Australia and we think this potentially signals not only that this project will [not] go ahead but that we'll have no new coal-fired power stations proposed in the future," he said.