The governments will contribute $2.5 million each and Australian Paper will match the commitment with $2.5 million of its own funding. The study will look into the proposed $600 million EfW project at the mill.
If the plan is viable, the facility would receive some 650,000 tonnes of waste from Gippsland and south eastern Melbourne and process that into base load energy to run the mill.
Australian Paper chief operating officer, Peter Williams, told The Herald Sun the plant could address some long-term landfill challenges.
"Generating energy from municipal waste at Maryvale would help address southeast Melbourne's long-term landfill issues, and also create valuable new construction and manufacturing jobs in the Latrobe Valley," Williams said.
"This project would be a major boost for regional paper manufacturing and we are excited to be investigating this important opportunity."
The paper making process at the Maryvale mill uses thermal power to create steam and Australian Paper is confident that the EfW model it is studying, which it says isn't common in Australia, is a good fit.
If the project goes ahead, the facility is expected to save half a million tonnes of CO2-e a year, and support 800 jobs during construction and 46 ongoing jobs - surely a welcome outcome after the job losses that followed the closure of the Hazelwood coal-fired power plant.