"Nobody in the world has yet realised this kind of power station process," he told reporters. "We're the first here."

State-owned Vattenfall said the plant would be built near Spremberg, southeast of Berlin, and be ready for operation in 2008 with a fuel output of 30 megawatts (MW).

But environmental group Greenpeace attacked the plan, saying the idea of a carbon dioxide (CO2)-free plant was a "myth".

The plant aims to use a process known as "oxyfuel" to separate out CO2, widely recognised as a cause of global warming, in a form pure enough for it to be stored permanently underground.

The firm said exhausted underground deposits of oil or gas might be used for this, but Rauscher added no definitive solution to the issue of long-term storage had been found yet.

The pilot will not produce electricity, only heat used by the plant itself. If the plant meets its targets, Vattenfall said it would then go on to build a demonstration station.

"The key thing here will be for the demonstration plant to show that a commercial plant with the oxyfuel technology is economically viable," said Rauscher.

The company said it hoped to begin commercial use of the new power stations between 2015 and 2020.

Vattenfall AB chief executive Lars Josefsson urged the adoption of worldwide agreements on carbon dioxide emissions trading and said his discussions with officials in the United States made him optimistic that agreement over a "joint solution" with them could be found.

Josefsson said emissions would have to be traded at some 20 euros per tonne to make the technology viable because of higher costs arising from the need for industry to drastically cut waste gas output.

Greenpeace spokeswoman Gabriela von Goerne said Vattenfall was attempting to deceive ecologists, adding the idea of storing CO2 underground was a pretext to extend fossil fuel usage.

"The gas may return to the surface at some point and carry on warming the earth," she said in a statement.

"Also, the myth of the environmentally-friendly coal power station is a hindrance to giving up burning coal and switching to the use of sustainable and clean sources of energy."