"CO2 scrubbing shows that we are getting closer to the coal plant of the future," said Economy Minister Karl-Theodor zu Guttenberg in a statement.
The EU wants all new coal-to-power plants after 2020 to be equipped with carbon capture and storage (CCS) technologies.
Germany is Europe's top greenhouse gas emitter.
The 9 million euros (US$12.72 million) pilot unit was 40 percent funded by the Berlin ministry, said RWE and its partners chemicals group BASF and Linde.
If it works successfully, the process will be transferred to existing coal and gas fired power plants after 2020.
BASF supplies solvents and Linde the process engineering.
RWE Chief Executive Juergen Grossmann said that a national CCS law, which had been postponed in June, needed to become a top priority after national elections in September.
He said that apart from power generators, the CCS technology was also needed by refineries, chemical plants, steel mills and cement factories.
RWE is seeking one billion euros from a partner or public funds to help finance a coal plant using CCS of commercial size at Huerth, which could be up and running from 2014.
The government coalition moved back the CCS legislation, which would also have created a basis for the exploration of CO2 storage facilities, because of political controversy.
Green campaigners say CCS diverts interest and funding away from alternative energies. Anti-coal lobbies are trying to stop planned coal plant projects even if they are made CCS-ready.