Wellington, Sept 11 NZPA - State-owned coal miner Solid Energy looks set to resile from its efforts to drop the sale of coal for household use.

The company today said it has signed a joint venture agreement with GTL Energy to look at building a briquette plant to use about 100,000 tonnes of lignite mined each year at its New Vale Opencast Mine near Mataura.

Solid Energy has 600 million tonnes of lignite at Mataura/Croydon in eastern Southland.

The announcement contradicts Solid energy chief executive Don Elder's statement in September 2004 that he planned to stop all sales of coal for household use because of air pollution from home coal fires.

"We know that coal and wood burnt for home heating on open fires and household burners cause air quality and health problems," he said at the time.

After announcing that it planned to quit the household coal trade in Canterbury during 2005, and in Otago and Southland about four years later, Solid Energy made significant sales of wood-based pellets for domestic pellet burners. But today Solid Energy said it will investigate the feasibility of using the closed Ohai Mine bagging plant for lignite briquettes for the household market, until the Government implements new national environmental standards for air quality.

At present the standards are due to take effect by the beginning of 2013, but the Government has recently announced that it will review the timing for the implementation of the standards.

"Solid Energy may alter its deadline for completing its withdrawal from the household market to be consistent with the outcome of that review," the company said.

The proposed joint venture will be built on the site of the former Mataura paper mill, about 10km east of the mine, and use GTL Energy technology to upgrade the coal by removing moisture to improve the thermal value. It would create 10 jobs.

The two companies will carry out technical and economic feasibility studies, undertake final engineering design and seek resource consents.

A decision to proceed with construction of the plant is expected to be made early in next year, based on demand from South Island industrial and commercial customers, but the lignite briquettes could also be used for home heating.

Solid Energy is still seeking ways to use Southland's 11 billion tonnes of lignite, and has previously proposed using a gasification plant to produce diesel, while at the same time extracting carbon dioxide and extremely valuable chemicals.

It last year launched a pre-feasibility study of setting up such a plant, and said such a plant could replace all of NZ's diesel imports within five years if the necessary processes -- including Resource Management Act consents -- were condensed "to the fastest possible point".

But the company still has not solved how to dispose of the carbon dioxide from the lignite, without having to pay for the emissions.

It has been eyeing the possibility of geo-sequestration of the carbon dioxide in the Great South Basin -- if oil and gas wells are eventually drilled there. Such an approach could require the Crown to carefully manage any production permits it issued in the basin, and to create separate new rights to inject carbon dioxide down the wells.

Other possibilities would be purchasing carbon dioxide credits, using forestry offsets, or even building a stainless steel pipeline up the length of the South Island and across Cook Strait so that the gas could be sequestered in the Maui field off New Plymouth.