* Conventional coal-fired plant will capture CO2 emissions
* Engineering, financing needed before construction begins
HOUSTON Dec 14 (Reuters) - Texas regulators voted to grant an air permit on Tuesday to Tenaska's $3.5 billion Trailblazer Energy Center, a clean-coal power plant to be built 180 miles (291 km) west of Dallas.
Plans call for the 600-megawatt plant to capture 85 to 90 percent of its carbon dioxide emissions for use in enhanced oil recovery operations in Texas' Permian Basin oil fields.
The plant design will minimize other pollutants and utilize dry-cooling technology to significantly reduce its water use.
"Tenaska is proud to be leading the way, not only in the United States but across the globe, to commercialize this proven technology that can help provide the clean energy the world is seeking in a cost-effective way," said David Fiorelli, Tenaska Development president, in a statement.
While the permit from the Texas Commission on Environmental Quality (TCEQ) is a key step, Tenaska said it must complete engineering and design studies, find financing and buyers for the plant's electric and CO2 output before the five-year construction period begins.
Omaha-based Tenaska said it also plans to secure additional state and federal incentives for carbon capture and storage (CCS) projects.
Trailblazer has been awarded a $7.7 million grant from the Australia-based Global Carbon Capture and Storage Institute, Tenaska said.
Arch Coal Inc (ACI.N) has a 35-percent interest in Trailblazer and will supply Powder River Basin coal to the plant for 20 years.
Earlier this year, the Environmental Defense Fund dropped its opposition in the TCEQ permit case after Tenaska agreed to limit water use and to sequester most CO2 produced by the plant.
TCEQ's action to grant the permit was praised by coal interests.
"We believe the early adoption of this technology in Sweetwater will lead to the widespread deployment of CCS around the world," said Darrick Eugene, general counsel for the Texas Carbon Capture and Storage Association.
The commission took "a step in the right direction because it ensures that Texas will develop and invest in more advanced clean-coal technologies," said Mike Nasi, general counsel for the Clean Coal Technology Foundation of Texas.
Trailblazer's use of post-combustion carbon capture technology -- equipment that captures the CO2 located on the back-end of the facility -- "will be of great interest to utilities who may be interested in retrofitting carbon capture technology on existing coal-fueled power plants," said Eugene.
Tenaska is also working to build an integrated gasification combined cycle (IGCC) plant in Illinois that will convert Illinois coal into synthetic natural gas which will be used to produce electricity. The Taylorville plant is expected to be able to capture about 50 percent of its CO2 emissions.
(Reporting by Eileen O'Grady;editing by Sofina Mirza-Reid)