The United Arab Emirates' ambitious Masdar "eco-city" is positioning itself to profit from a carbon-constrained global economy.

The desert city, slated for completion over the next decade, would generate electricity on site from the wind and sun and produce zero net greenhouse gas emissions. And in a new twist, Masdar also would generate cash by buying and selling carbon dioxide emissions globally.

The German utility E.ON AG and Masdar, a unit of Abu Dhabi's state-owned Mubadala Development Co., announced a joint venture today that will develop tradable carbon credits from emission-reduction projects in Asia and Africa. The company, called E.ON Masdar Integrated Carbon (EMIC), will launch later this quarter and focus on projects within the power generation and fossil fuel production sectors.

Projects will include reducing leakage from natural gas pipelines, gas flaring from oil wells and electricity consumption at industrial facilities, E.ON officials noted in a written statement. The resultant carbon credits would be traded under the United Nations' Clean Development Mechanism, as well as future emissions-trading programs.

"Masdar and E.ON's combined significant and complementary expertise and market exposure will give the new company a leading edge in the market," said Frank Mastiaux, chief executive of E.ON's climate and renewables unit. The Dusseldorf, Germany-based company's renewable energy portfolio includes 2.8 gigawatts of installed capacity in the United States and Europe.

When completed, Masdar will be the home of about 50,000 residents, a university and dozens of companies -- all on just 3.7 square miles of land (Greenwire, June 28, 2007). The walled city will also be the home of the International Renewable Energy Agency, an intergovernmental agency that supports renewable energy deployment.

"We find ourselves to be the single largest investment in renewable energy," Masdar CEO Sultan Ahmed Al Jaber told E&E last year. "We are the only entity in the world that covers the whole value chain of renewable energy."

The Abu Dhabi government contributed $15 billion to the city's first phase of development. The master plan calls for seven development phases through 2018, including the infrastructure to capture, transport and inject industrial CO2 emissions in oil wells.

Masdar officials aim to capture and sequester 20 million metric tons of CO2 by 2020, said Sam Nader, director of Masdar's carbon management unit.

"We expect a lot of industries to come to Abu Dhabi," Nader added.

Masdar has already inked cleantech finance and development deals with General Electric Co., Siemens AG and other major companies. Boeing Co. and Deutsche Bank are among Masdar's latest partners.

Boeing, Etihad Airways, Honeywell International Inc. and the nascent Masdar Institute of Science and Technology signed a deal yesterday to develop biofuels for aviation (see related story). The companies' Sustainable Bioenergy Research Project will use saltwater to grow shellfish as well as mangrove and salicornia, a plant that thrives in salty conditions. The plants would be harvested to produce aviation biofuels and co-products.

In a related deal today, Masdar and Deutsche Bank launched the DB Masdar Clean Tech Fund and at its first closing, raised $265 million. The fund will invest primarily in expansion and later-stage companies in the clean-energy, environmental resources and energy/material efficiency sectors.