Brown coal turned into hydrogen in Victoria's Latrobe Valley will be used to power cars and homes in Tokyo in a groundbreaking $496 million project.
The Australian and Victorian governments have each pledged $50 million to a pilot hydrogen energy supply chain for export to Japan.
"It is amazing to think that brown coal here in Victoria will be keeping the lights on in Japan," Mr Turnbull said during a visit to the region on Thursday.
"It will see brown coal from here in the Latrobe Valley converted to hydrogen, liquefied, and then exported to Japan."
The coal will come from AGL's Loy Yang mine and be converted at a new nearby facility, then driven to a liquefication terminal at the Port of Hastings for shipment.
Emissions produced during the pilot are expected to be "minimal", with AGL purchasing carbon offsets to mitigate the impact.
If expanded in the future, project partners recognise the need for carbon capture and storage, the company said.
Funding will also come from a Japanese consortium led by Kawasaki Heavy Industries and the Japanese government, and Energy Networks Australia.
Construction of the pilot facility is expected to start in early 2019 and the first shipment of hydrogen is scheduled for 2020/21.
The project is expected to create 400 jobs in the Latrobe Valley.
Kawasaki Heavy Industries executive officer Eiichi Harada said it was an exciting project with two great nations making "good use" of brown coal.
"From 2020 onward hydrogen will be introduced into Japanese society in many forms, and this will be part of that," he said through a translator.
Victorian Regional Development Minister Jaala Pulford said hydrogen was a "fuel of the future".
"We want to capitalise on that right here in the Latrobe Valley," she said.
However, the state Greens have accused the two governments of spending $100 million to "prop up Victoria's dirty, dying coal industry".