If correct, this would mean that, instead of being injected deep under the earth's surface, greenhouse gases from coal-fired power stations could be combined with sewage and exposed to sunlight to form an algae used to make products such as biofuels and fertiliser.

Opposition environment spokesman Greg Hunt told The Australian Financial Review: "We were very cautious about algal energy but we are now beginning to take the view that CCS is likely to be a bit slower than we expected [and] algal energy is likely to be a lot faster than we had expected."

He cited algal energy company MBD Energy, which is undertaking a project at the Loy Yang A brown-coal power stations in Victoria and which last week signed on as a cornerstone investor.

But MBD agribusiness manager Tony St Clair said the viability of algal sequestration depended in part on having Australia's emissions trading scheme recognise agricultural offsets - the key demand of the coalition in its negotiations with the government.