Australia's first carbon capture plant has entered the demonstration phase.

The $208 million Callide Oxyfuel Project is one of only a few coal-fired low emission projects in the world to move beyond concept into construction, its developers say.

While the Callide plant in Biloela, a rural area in central Queensland, was decommissioned several years ago, one 30 megawatt circuit was brought online by CS Energy specifically for the carbon capture and storage project.

Those 30 megawatts, enough to power about 30,000 homes, will test the feasibility of retrofitting other existing power stations with the technology.

"Demonstration projects such as the Callide Oxyfuel Project are essential if we are to research, develop and test such leading edge technologies for future application at a commercial scale," project director Chris Spero said in a release.

Partners for the project include the Queensland government, the Japanese government, the Australian Coal Association, Xstrata and Japan's IHI Engineering.

Australian Federal Resources Minister Martin Ferguson, who has referred to the project as one of the world's most important carbon capture and storage projects, this week announced additional government funding of $13 million to the project to extend its demonstration phase through November 2014.

Spero told the Australian Broadcasting Corp. the project is designed to catch more than 85 percent of the carbon dioxide of the flue gases or smokestack emissions being treated.

The main objective of the plant is to burn coal with pure oxygen for less waste and confine and gather the greenhouse gases rather than release them into the atmosphere.

Coal generates about three-quarters of Australia's electricity.

The Australian government's Energy White Paper, issued last month, said the country has the potential to store 417 gigatonnes of carbon dioxide, or the equivalent of 2,000 years of current Australian emissions. It projects that 26-32 percent of fossil fuel electricity generation capacity would have CCS applied to it by 2050.

Yet electricity generated by coal-fired low emission projects can be more costly.

The cost of generating power with CCS could cost $100-$150 per megawatt hour compared with current wholesale prices of about $50, Spero said in a report in The Canberra Times.

Spero said that a Japanese research organization is looking for a 200-250 megawatt plant in Australia to develop the technology further.

"Japan relies on coal for about 20 percent of its power generation, so Japan is very enthusiastic about using coal but also reducing CO2 emissions at the same time," Japanese Department of Natural Resources and Fuel Director Akira Yasui told ABC.

More than half of Japan's coal comes from Australia, he said.