CNN Money, January 19, 2008
By Steve Hargreaves, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- It's the ultimate business plan: Take something people are willing to pay to get rid of, and sell it to someone else.
That's exactly what a handful of small but well-backed companies are doing - or are trying to do - with carbon dioxide, the main culprit behind global warming.
The companies include: Blue Source, a firm half-owned by the the private equity group First Reserve; Hydrogen Energy, a joint venture between BP (BP) and the mining giant Rio Tinto (RTP); Edison Mission, a utility owned by Edison International (EIX, Fortune 500); and a division of the oil services firm Schlumberger (SLB), according to Alex Klein an analyst at the consultancy Emerging Energy Research.
Most of the companies were either unavailable for comment or did not respond to calls. But Blue Source, in the business for 10 years, spoke at length about the nascent but potentially lucrative market in carbon dioxide.
"I can't even begin to describe the inquires we're getting from people," said Lauren Kimble, the company's vice president of marketing. "It's really exciting."
And it could get even more exciting if the federal government passes a law regulating carbon dioxide emissions, something many analysts think is likely after the 2008 elections, regardless of who wins.
So far oil companies are the main buyers. Usually they inject water or natural gas back into oil wells to maintain pressure and keep the oil flowing. But increasingly they are using carbon dioxide.
Oil companies currently inject less than one percent of the world's carbon emissions underground, said Emerging Energy's Klein. But they might be able use -and willing to pay for - up to a fifth of all carbon emissions from coal-fired power plants in the U.S.
Klein said the profits from carbon sales would likely be enough to offset the cost of building cleaner-burning coal power plants - ones that gasify coal before combustion and thus make it easier to collect the carbon dioxide. Normally, these plants are about twice as expensive to build, he said.
Another potential buyer could be coal companies, who might be able to inject the carbon into coal seams, displacing the more valuable natural gas. But that technology is still in the early stages, said Klein.
The other market for carbon comes from companies that want to reduce their emissions, either for public relations purposes or because they are part of a voluntary carbon reduction plan. This is the area that could see significant growth if the government puts a cap on carbon dioxide emissions.
"That would be a massive driver," said Kimble.
Blue Source makes its money two ways - selling carbon to oil companies, or burying it underground for companies that want to reduce their emissions.
The company can only sell pure carbon dioxide, and it gets it from manufacturers like ethanol or natural gas processing facilities that produce it as waste.
Traditional coal fired power plants - which are also big emitters of carbon dioxide - are not targeted, because their carbon emissions are mixed with other pollutants and separating them is expensive.
Blue Source basically puts a pipe over the smokestack at a manufacturing plant to capture the carbon dioxide. The gas is then pressurized and sent via a network of pipelines to customers. Kimble said there are roughly 3,500 miles of pipelines dedicated to carrying carbon dioxide crisscrossing the country, and that number is growing.
"We want to develop the carbon highway," she said.
A federal carbon law would most likely require companies to emit less and less carbon each year. Companies that cut carbon emissions more than required would be allowed to sell their credits to companies that couldn't hit the mark.
Injecting carbon underground may be one way companies could build their carbon credits, and could be a boon for companies developing the market in carbon dioxide.
"They're hoping they'll be some sort of regulation in place to validate that business model," said Klein.
Regulation would also remove some of the uncertainty around storing carbon underground, said Klein.
While most geologists think underground storage works, and would most likely keep the greenhouse gas out of the earth's atmosphere, Klein said there hasn't been a whole lot of monitoring which does raise some questions about whether or not the carbon is staying buried.
And if it escapes, the law is currently unclear as to who is responsible.
That is another reason why lot of carbon emitters - like big utilities - have stayed on the sidelines so far, Klein said.
"Until there is legislation saying who is responsible, they don't want to mess around with it," he said.
But if a law is passed and the technology proves reliable, underground storage space isn't likely to be an issue. Klein said there is enough room for 100 years of carbon emissions underground, mainly in salt water aquifers.