China's first commercial CCS facility will be built at the company's 24.5 billion yuan (US$3.58bn) coal-to-liquids plant at Ordos in Inner Mongolia, which is expected to go into full operation later this year, the state-owned assets Supervision and Administration Commission said on its website.
With China still dependent on coal to meet the bulk of its energy needs, carbon capture and storage has been identified as a crucial element in the country's efforts to reduce greenhouse gas emissions, currently believed to be the highest in the world.
However, there are still doubts about the commercial and environmental viability of CCS technology, which has not yet been ratified by the United Nations Framework Convention on Climate Change amid concerns about the long-term safety of underground storage sites.
The Chinese Government curtailed its coal liquefaction program last year amid concerns about pollution and excessive water consumption. Shenhua's Ordos plant is one of only two major facilities that has been allowed to go ahead.
David Trimm, an expert with Australia's Commonwealth Scientific and Industrial Research Organization, said that carbon sequestration will play an important role in the development of coal-to-liquids technology.
"But the problem is where to sequester it. Usually they put it in a saline aquifer, but I am not sure if there is anywhere suitable in China," he said.
Scientists behind a pilot CCS project launched by China's Ministry of Science and Technology and the British Geological Survey in 2007 have also been looking into the possibility of storing carbon in depleted oil and gas fields and unmined coal seams.
The statement said that Shenhua's carbon capture facility would be put into full operation within two years.