To attract a $1 billion coal-fueled electric plant touted as better for the environment, Illinois is offering a $17 million direct grant, $15 million in sales tax exemptions and $50 million in below-market-rate loans.

"The package we have put together is another clear indication of our willingness to invest in the cutting-edge technologies that will expand markets for Illinois coal, put more people to work and protect our environment," Gov. Blagojevich said in a statement.

Twelve sites in seven states are vying to host FutureGen, a power plant that will turn coal into hydrogen to create electricity while capturing and storing carbon dioxide deep underground. Illinois' four proposed Downstate sites are in Effingham, Marshall, Mattoon and Tuscola.

FutureGen Industrial Alliance, made up of a coalition of energy companies, is developing the facility for the U.S. Department of Energy. The "world's cleanest coal plant" will use coal gasification technology to produce 275 megawatts of electric power, as well as hydrogen for fuel cells and other uses, according to the Illinois Department of Commerce and Economic Opportunity.

Besides finding a cleaner use for Illinois coal, the plant could provide 1,500 temporary construction jobs and about 100 full-time jobs, according to Bill Hoback, bureau chief for the office of coal development for the DCEO.

Hoback explained that Illinois has a geological advantage because carbon dioxide, which has been blamed for global warming, can be sequestered in a sandstone formation running under Illinois.

Illinois is not the only state pushing hard for this plant. Ohio has proposed issuing $300 million in tax-exempt bonds, according to a report in the Bond Buyer.

FutureGen requires a site larger than 200 acres with transportation, access to transmission interconnections and skilled labor.

Hoback said FutureGen will provide a list of finalists July 21.

The winner will be selected by late summer, according to FutureGen Industrial Alliance.

Environmentalists have expressed doubts over gasification technology, saying there are cleaner options.

The $17 million Illinois grant comes from the Coal Development Fund.

Additional funding is available through the Illinois Coal Competitiveness Program, the Illinois Clean Coal Institute and the public-private partnership Clean Coal Review Board.

The Illinois Finance Authority has set aside $50 million in below- market-rate loans for the alliance.

mwisniewski@suntimes.com