Tensions within the Victorian government over climate policy have boiled over after Trade Minister Tim Pallas secured a deal with Japan to allocate $2.35 billion towards a project to use carbon capture and storage to convert Australia’s dirtiest coal into clean hydrogen for export to Japan.

But sources within government said the project would require the approvals of Victoria’s Minister for Climate, Energy and Resources and State Electricity Commission, Lily D’Ambrosio, who they warn has taken a much harder line against any carbon or gas-related projects.