The Morrison government has signed a deal for NSW to increase fossil fuel activities in exchange for emissions-reduction money.

The federal and New South Wales governments say their $2 billion agreement trades funds for investment in new renewable energy projects in return for expanding the use of coal and gas.

The NSW Government has pledged to “remove barriers” to increase the supply of coal to the Mount Piper coal fired power station, which is running below its maximum capacity due to quality issues with its primary supply of coal.

The new supplies should see the Mt Piper station stay running for at least another twenty years.

“This plan makes perfect sense to us. It’s a good balance and Mount Piper will be in operation until at least 2042. So we rely on that as a critical energy source,” NSW Premier Gladys Berejiklian said.

The state also committed to expand gas production, supplying an additional 70 petajoules worth of gas into the east-coast market each year. It is presumed that this will come from the controversial and highly-contested Narrabri proposal.

In exchange, the Federal Government says it will provide $960 million for “emissions reductions initiatives”, around $510 million of which will be provided in the form of loans. New South Wales is committing $1.01 billion of its own funds to match.

The specific emissions reduction activities are unclear for now, but it has been suggested that the funds will go to NSW’s first Renewable Energy Zone.

“Our agreement with the Commonwealth today will ensure we continue to strengthen and diversify our energy sector here in New South Wales – securing traditional energy sources whilst growing renewable energy investment across the state,” Ms Berejiklian said.

Opposition parties have slammed the agreement, labelling it a “deal with the devil”.