Tuesday, August 18, 2009

Carbon Creativity

The search for the right way to play carbon required a look at the “burn fossil fuels with abandon and sequester” solution to the global warming problem. (See our carbon series beginning with the May 26th post, "Combustion Basics" and the June 9th post, "Down with Carbon.") While it does not resolve our dependence upon imported energy sources, i.e. foreign oil, it does reduce the pressure to invest in unproven alternative energy sources.

As we learned, underground sequestration is also an expense and still unproven approach in itself. Carbon sinks in the form of trees and ocean plants are elegant but perhaps unreliable or inadequate solutions. Then there are the algae that gulp CO2 emissions for breakfast, providing oils for biofuel production at the other end. (See our post on June 12, "The Color of Carbon.") Algae are less elegant, but in my view, more practical and perhaps more affordable if the algae can be scaled up to use all the CO2 emitted at a power plant, for example. The business model is also more appealing as the CO2 solution becomes a potential revenue generator rather than a sunk cost.

Using this line of reasoning, I went looking for other innovative technologies that require CO2 as a raw material. It did not take much time to find two well known processes. The energy industry already knows how to use chemicals and hydrogen gas to produce methane or methanol from CO2. There is also a process called photolysis that applies light to strip the oxygen from CO2. Unfortunately, these are pricey processes and would not support a profitable end-product.

Smart folks at Carbon Sciences, Inc. (CABN: OTC/BB) are also looking at CO2 as a feedstock for fuel production. They are developing a multi-step biocatalytic process that relies on inexpensive biomolecules instead of the usual high-priced inorganic catalysts such as zinc or gold. The biocatalyst is applied to CO2 and water to produce fuel molecules. Sounds very much like the process that goes on in the “bellies” of algae, but biocatalysts could be better controlled, more scalable, not to mention less “messy.”

The Carbon Sciences’ idea is to tap CO2 from a large emitter like a power plant, remove the particulates and process the CO2 through a matrix of liquid reaction chambers laced with biocatalysts. The output is a combination of gaseous and liquid hydrocarbon fuels that could be upgraded to higher fuels like gasoline or jet fuel. The Company claims its reaction chambers are low temperature and low pressure vessels, which appears to be another key to keeping the process low cost.

This sort of technology for using CO2 emissions as feedstock in fuel production may have greater appeal than the algae. The operation may be more familiar to power plant operators given their experience with pollution abatement equipment. Furthermore, the form factor of the reaction chambers may be more appropriate for the power plant setting as facility space at many power plants could be precious.

The idea of turning CO2 into a valuable by-product of energy production from coal or gas is quite appealing from an investor’s standpoint. It suggests a new economic dynamic transferring CO2 emissions from the debit to the credit side of the global warming conundrum.

So far it is mostly academic. There are no sales as Carbon Sciences is still in a developmental stage. At the end of June 2009, the Company reported $13,993 in cash on the balance sheet and there is a going concern note on the last quarter report. The Company is applying for Department of Energy grant money available under the American Recovery and Reinvestment Act to complete additional development on their technology.

In my view, an investment in CABN shares could be highly speculative. CABN shares could be considered an option on the technology and could be appealing for the investor with a long-term investment horizon and a proclivity for high risk.

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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