The government has given the go-ahead for a new generation of coal-fired power plants - but only if they can prove they can reduce their emissions.
Up to four new plants will be built if they are fitted with technology to trap and store CO2 emissions underground.
The technology is not yet proven and would only initially apply to 25% of power stations' output.
Green groups welcomed the move but said any new stations would still release more carbon than they stored.
Energy Secretary Ed Miliband's announcement followed confirmation in the Budget that there would be a new funding mechanism for at least two - and up to four - "demonstration" carbon capture and storage (CCS) projects.
He told MPs it would allow the UK "to lead the world" in the technology - and keep coal within the UK's energy mix without abandoning climate change commitments.
It is not clear where the new plants will be located although the government said areas where the greatest benefits could be generated included parts of Kent and Essex, Humberside, Teesside, Firth of Forth and Merseyside.
In 2008 coal power stations provided 31% of the UK's electricity but a third of them are due to close in the next ten years.
There is no alternative to CCS if we are serious about fighting climate change
Coal is the dirtiest fossil fuel but is likely to remain widely used across the world because it is cheap and relatively abundant.
Mr Miliband said there was an "international imperative to make coal clean" and said the era of "unabated" growth in coal-fired plants was over.
He said only allow new coal stations fitted with CCS would be allowed to be built in England and Wales.
The technology would at first have to cover between 20 and 25% of the station's energy output.
Once it is "independently judged as economically and technically proven" - which the government expects by 2020 - those stations would have five years to "retrofit" CCS to cover 100% of their output.
Mr Miliband said successful CCS development could cut carbon emissions from coal by 90%.
This statement is urgently needed because after 12 years Britain's energy policy is as much of a horror show as our public finances
He told MPs the move put the UK "in a world leadership position on CCS and coal".
"There is no alternative to CCS if we are serious about fighting climate change and retaining a diverse mix of energy sources for our economy," he added.
One publicly funded project had already been planned and the additional ones will be funded through a scheme which will guarantee the price companies receive for electricity generated by CCS.
Mr Miliband said that would add an estimated 2% to energy bills by 2020.
Shadow energy secretary Greg Clark welcomed what he called the government's "Damascene conversion" to CCS adding: "This statement is urgently needed because after 12 years Britain's energy policy is as much of a horror show as our public finances."
For the Lib Dems, Martin Horwood was concerned that by only insisting on 100% CCS use when the technology was deemed ready, Mr Miliband had inserted a "dirty great loophole big enough for some of the dirtiest power stations possible to fit into".
The announcement was welcomed by trade unions who said it could create thousands of jobs, avoid energy shortages and put the UK at the forefront of a technology that could cut carbon emissions across the world.
But while environmental groups welcomed an end to unabated coal fired stations - there were concerns about increased emissions.
Greenpeace executive director John Sauven said that for every tonne of carbon captured before 2020, three would be released into the atmosphere.
Some concerns were raised that billions of pounds of taxpayers' money was being spent on technology that remains unproven.
WWF-UK's Keith Allott said the taxpayer should not have to "shoulder the full brunt of the costs" and the "polluter" should make significant financial contributions.
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