Cenagen is proposing to build a $1 billion waste processing plant at the former Kandos Cement Works, near Mudgee.
The NSW government says it is an energy-from-waste facility and prohibited from being built in the area.
Locals are divided over the potential benefits of the development, as the proponent prepares to lodge a scoping report.
A meeting is brewing between the New South Wales government and the proponents of a $1 billion waste processing plant near Mudgee.
Cenagen is proposing to develop the facility at the former Kandos Cement Works, the site that supplied cement to help construct the Sydney Harbour Bridge.
If approved, it would process 450,000 tonnes of rubbish per year bound for landfill using gasification technology.
However, the state government has pushed back on the proposal with Environment Minister Penny Sharpe claiming it falls under the energy-from-waste framework and is prohibited from being built in the town.
"We are not energy-from-waste, we respectfully disagree," chief executive Jason O'Sullivan said.
"There will be some stage where the difference of opinion will have to be resolved.
"If and when that arises we are comfortable in our position."
The technology proposed by Cenagen exposes waste to temperatures of up to 1,000 degrees Celsius in a low-oxygen environment to produce a synthesis gas that contains hydrogen, carbon monoxide and dioxide within a sealed system.
Those chemicals are then used to manufacture 91,000 tonnes of methanol annually, which will be used as a lower-emission alternative to fossil-based fuels used in transportation, according to Cenagen.
The project would be the first of its kind in the world.
The NSW energy-from-waste framework prohibits thermal rubbish treatment that involves energy recovery unless it takes place within one of the four designated precincts across the state, being Parkes, West Lithgow, Tarago and Tomago.
In a letter to MLC Stephen Lawrence, Environment Minister Penny Sharpe said based on the available information, she believed the project could not go ahead in Kandos.
"There is no alternative approval pathway to such activities."
The ABC contacted Minister Sharpe for comment and was referred to the Environment Protection Authority (EPA).
In a statement, a spokesperson for the EPA said the thermal treatment of waste that involves energy recovery is limited to the four precincts.
"Kandos is not within an approved precinct under the framework," the spokesperson said.
In response to supplementary questions asked of the EPA following budget estimates in August, it detailed they met with representatives of Cenagen in August 2024 and July 2026.
"The view presented in each meeting was that the proposal would likely be prohibited due to the energy-from-waste framework," they said.
Mr O'Sullivan said the technology did not rely on combustion like energy-from-waste incinerators.
"It's going to come down to a statutory interpretation," he said.
"We firmly believe that we don't need any changes to the precincts and that we're exempt from the prohibition."
If the project is approved, 1,000 tonnes of waste will be transported to the site daily via rail, the majority from Sydney and other regional centres.
A scoping report has been submitted by Cenagen to the NSW Planning Department and is awaiting publication.
If approved, the project would create up to 350 full-time jobs.
Will De Beaurepaire runs a 55-hectare winery at the nearby town of Rylstone, about5 kilometres from the proposed site.
Mr De Beaurepaire was worried a waste-to-energy facility would kill the region's tourism industry.
"There would be some concerns about emissions, the project themselves says minimal emissions, that's not no emissions," he said.
"We've currently got jobs in the area … these are not dying towns … there is a large risk.
Kandos resident Marella Harris has a property about a kilometre from the former cement works.
"They'll classify it as a dump town and that's not what we are."
The project has led to division in the communities of Rylstone and Kandos between those who support the development and those opposed.
"It does drive a wedge into the divisions in our community," Mr De Beaurepaire said.
"We've got people who are rightfully concerned because of their business, their children, their own health.
"If the regulator is saying it's not even allowed here, we don't even need to have this debate."
The former Kandos Cement Works has a place in Sydney's history; it supplied the cement that was used to build the harbour bridge's pylons between 1928 and 1932.
After operating for 95 years, the facility closed in 2011.
"Kandos has a huge legacy in building Sydney and the rest of the state," local historian Buzz Sanderson said.
Mr Sanderson believes the project could fill the hole in the community that was created when 64 people lost their jobs when the cement works closed.
"It changed the social fabric of the town," he said.
"It would be a truly marvellous thing … it is a level of employment that is size comparable to the employment that was in the town before."