Tuesday, June 09, 2009

Down with Carbon

Carbon emissions are bad. Down with carbon - literally! The answer some are proposing for our green house gas problem is to capture and sequester carbon dioxide emissions deep in the ground or in the ocean. The U.S. Department of Environmental Protection under Stephen Chu is putting serious money behind the concept by allocating $2.4 billion from the Recovery Act for pilot carbon capture projects.

Carbon capture or carbon sequestration comes in several forms. Most investors probably think of the large scale sequestration plans of some coal-fired power plants to capture and store carbon emissions in underground geographic formations such as abandoned coal mines.

Investing in carbon sequestration is easier said than done. Siemens Energy, a unit of Siemens AG (SI: NYSE) just started a project the beginning of this year in cooperation with a Norwegian utility. Siemens expect to take two years to prove the viability of its carbon capture technology with combined-cycle power plants.

The problem is that the extra step of capture and storage requires the expenditure of energy. To place CO2 in underground storage requires compression to 100 times atmospheric pressure, transport and then pumping into the ground. Indeed, most of the carbon capture solutions require considerable expenditure of incremental energy, whether it is sequestration of power plant emissions or seeding plankton growth in the deep ocean. This conundrum brings into sharp relief just how inefficient our transportation and mechanical equipment really are in terms of energy consumption.

Duke Energy (DUK: NYSE) is a utility that is taking the lead on both energy efficiency and carbon capture. Duke is planning a $2.4 billion power plant in Edwardsport, Indiana that will generate 630 MW using advanced integrated coal gasification combined cycle technology. The plant is expected to emit 45% less carbon dioxide per megawatt-hour than the existing facility at Edwardsport. The budget now included $17 million for a study of carbon capture for the new plant.

Fertilizing the ocean with iron to promote the growth of carbon hungry plankton is also a carbon capture technique. Unfortunately, recent attempts have demonstrated that mixed results. Planktos Corp. (PLTK: OTC/PK) gave up after running out of money in last 2008 and is seeking new business opportunities. Climos (private) appears to have had more success in raising financial support and is still pursuing ocean iron fertilization but has not reported much progress over the last year. The business model is dependent upon healthy trade in carbon credits that enable the monetization of the plankton growth.

One more carbon capture concept is fairly energy efficient. Reforestation of marginal crop lands or other deforested areas also creates a “carbon sink” as the new trees pulls CO2 out of the atmosphere through photosynthesis. The Peugeot-ONF Carbon Sink Project in Amazonia is largely a success with over two million trees planted over the last ten years. Most reforestation projects have been supported by government or non-profit agencies. Like the ocean projects, commercial attempts at reforestation are dependent upon the availability of carbon credits.

Perhaps the EPA should be putting that $2.4 billion into projects that would create efficiency in combustion engines and processes so that less fossil fuel is burned and therefore less carbon is emitted in the first place. For right now that is where my investment dollars are going - efficiency and conservation solutions.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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