The Victorian and Federal Governments have established a $90 million research fund to encourage low-emission brown coal technology in the Latrobe Valley, in Victoria's east.
Companies have been invited to bid to develop ways to dry brown coal from the Latrobe Valley and create commercial energy products.
The Minister for Energy and Resources, Martin Ferguson, admits previous attempts have failed.
He says the fund may result in projects to convert brown coal into hydrogen, liquified gas, fertiliser or char.
"This advanced lignite demonstration program is about saying we're prepared to back it in with 90 million," he said.
"You've got to put money on the table, we've all got skin in the game, we know it can be done.
"Technology is the opportunity, but we've got to give it a go and who knows what will come out of it."
Last week the minister withdrew $100 million from Morwell company HRL, after it failed to progress a proposal for a new power station.
Mark Wakeham from Environment Victoria says money should be directed at renewable energy research not brown coal.
"Continually we see taxpayers money poured into so-called clean coal projects and these projects fail to materialise," he said.
"We lose significant amounts of money and we waste time in the fight against climate change."