An agreement was reached between the Energy Department and the FutureGen Alliance, a nonprofit global consortium of coal producers and users, for a clean coal plant in Mattoon, Illinois.
The plant would be the first U.S. commercial scale carbon capture and storage project.
"Not only does this research have the potential to reduce harmful greenhouse gas emissions in the U.S., but it also could eventually result in lower emissions around the world," Chu said.
FutureGen's $1.8 billion coal-fired power plant with the technology to cut greenhouse gas emissions was scrapped by the Bush administration due to a ballooning price tag.
But a congressional report released in March revealed that the prior administration's cost estimates for the project were flawed, with the intent of killing the project.
President Barack Obama has expressed support for the project, which would be built in his home state.
The new agreement calls for a restart of preliminary design activities and an updated cost estimate, the department said.
Once these activities and others are completed in early 2010, the department and the alliance will decide whether to continue with the project.
The Energy Department expects to spend about $1.073 billion on the project, with $1 billion from the American Recovery and Reinvestment Act.