The state and federal governments have contributed a combined $25 million to the project.

Shanghai hopes the project will enable brown coal to be upgraded in a way that generates fewer emissions and provides good exporting potential.

“Victoria is home to one of the world's largest brown coal reserves and this joint investment will enable the development of new smarter, cleaner and sustainable uses for this important resource” Energy and Resource Minister Russell Northe told The Australian.

Two other projects have already received funding through the government’s 50:50 state-Commonwealth advanced lignite demonstration program.

Coal Energy Australia's $143 million demonstration plant and the Ignite Energy Resources $84.3 million pre-commercial plant have both received government grants.

The Opposition has expressed concern over the funding, claiming it is simply a distraction following the 45-day fire at the Hazelwood coal mine.

Environmental groups have pledged to blockade coal trains in a bid to stop the progression of the brown coal project.

President of Voices of the Valley Wendy Farmer told News Ltd public money should be given to an international company when people in the town of Morwell were still suffering from the effects of the blaze.