Premier Daniel Andrews has defended a government pledge of $50 million to a pilot project to turn brown coal from Victoria's Latrobe Valley into hydrogen for export to Japan.
The Australian and Victorian governments have each pledged $50 million to the groundbreaking $496 million project, with the hydrogen to be used to power cars and homes in Tokyo.
"It's a trial; it may work, it may not work," Mr Andrews told ABC radio on Friday.
"It's been able to get through some hurdles, both from the science but also the maths of it too.
"If you prove the concept, and you've got a pretty well unlimited resource down there in the Latrobe Valley, then it's something that's worth trying."
Mr Andrews said if the technology can be proven, it will be a world first.
"This is not simply a private sector proponent coming to government, saying some kind of alchemy story of, 'I can turn this to gold'," he added.
"It comes with the support of the Japanese government and the support and partnership of the Commonwealth."
Prime Minister Malcolm Turnbull visited the La Trobe Valley region on Thursday to make the announcement.
The coal will come from AGL's Loy Yang mine and be converted at a new nearby facility, then driven to a liquefication terminal at the Port of Hastings for shipment.
Emissions produced during the pilot are expected to be "minimal", with AGL buying carbon offsets to mitigate the impact.
If expanded in the future, project partners recognise the need for carbon capture and storage, the company said.
Funding will also come from a Japanese consortium led by Kawasaki Heavy Industries and the Japanese government, and Energy Networks Australia.
Construction of the pilot facility is expected to start in early 2019 and the first shipment of hydrogen is scheduled for 2020/21.
The project is expected to create 400 jobs in the Latrobe Valley.
The Victorian Greens accused the state and federal governments of spending $100 million to "prop up Victoria's dirty, dying coal industry".
