In eastern Germany, energy giant Vattenfall has unveiled the world's first coal-fired carbon sequestration and storage plant -- a project the industry hopes will become a breakthrough for climate protection. Critics, however, say it's too expensive.

Schwarze Pumpe, a small industrial town in the industrial no man's land between Berlin and Dresden, used to be one of the dirtiest communities in communist East Germany. Today, Schwarze Pumpe is all about clean tech, namely CCS, which Vattenfall hopes will help keep dirty coal in the future energy mix despite the challenges posed by global warming.

Last week a group of German politicians visited Schwarze Pumpe to witness the launch of Vattenfall's $100 million CCS test plant, which it built over the past two years.

The 30 megawatt test plant captures the carbon dioxide emitted during the electricity generation process to liquefy it for temporary storage in tanks and eventually permanent storage in secure reservoirs underground. The plant at Schwarze Pumpe is the world's most advanced CCS project to date. Over the next five years, Vattenfall intends to test and improve CCS in order to build larger plants in the future.

Lars Josefsson, the chief executive officer of Sweden-based Vattenfall, believes the future will be all about CCS. "This technology will be more important than offshore wind parks," he said.

German energy giants RWE and E.ON already have said they will invest in CCS. RWE plans to build a 450 megawatt CCS power plant near Cologne, to be unveiled in 2014. Investments for this plant will amount to $2.8 billion, half of which RWE is ready to shoulder.

"We will do everything in our power to ensure this innovative project is now swiftly expedited. With our expertise in clean power technologies, we want to show the energy to lead in this field," RWE CEO Juergen Grossmann said in a statement.

E.ON is pushing no less than seven CCS projects in Germany and the Netherlands, but it hasn't yet started building a test plant. Duesseldorf-based E.ON aims to use CCS on a large scale by 2020.

German politicians back clean coal.

They do so, for one, because of energy security reasons -- coal is readily abundant in Germany. Moreover, they expect that the CCS expertise can be exported to coal-rich countries such as India and China (although you can't yet update an existing plant with CCS technology).

"We need powerful new power stations, and efficient, modern coal-fired plants are part of that," Chancellor Angela Merkel said recently.

Not everyone is excited about CCS, however -- protesters greeted politicians at the launch of the Schwarze Pumpe plant last week.

Environmental groups argue the technology is too expensive, comes too late and is used to justify constructing more coal-fired power plants, instead of funneling money into renewable energy sources and energy efficiency.

And indeed, a series of questions still burden the future of CCS.

The liquefied carbon dioxide needs to be stored at depths of at least 900 yards to contain its liquefied state, and the sites need to be tested for their impermeability before carbon dioxide can be injected into them. The best candidates seem to be empty oil and gas reservoirs, but experts are still in the earliest stages of their research. Vattenfall, which aims to capture some 100,000 tons of emissions over the next three years at Schwarze Pumpe, for now stores the carbon dioxide in tanks. It hopes to inject the carbon dioxide over the next three years into an empty gas reservoir in Saxony-Anhalt, where experts are currently undertaking tests.

Costs are another issue. Building the highly sophisticated plants and transporting the gas is expensive; moreover, the efficiency levels of CCS plants are still 10 percentage points lower than those at regular plants, meaning that it's 25 percent more expensive to produce the same amount of energy.

Yet officials say once the emissions-trading scheme is in full swing and the price for certificates rise to 35 euros (from just under 30 euros now), CCS can compete on the market.

"We aim to show that it's feasible, that it's economical," Josefsson said, adding that his company is ready to invest many billions in CCS. "We will make electricity clean," he said.