$20M Carbon XPrize: Pulling money out of thick air

When it comes to tackling climate change, the fossil fuel industry has focused most of its efforts on finding ways to capture - so far with little success - the greenhouse emissions belching from power plants and factories so they don't reach the atmosphere.

But little research has gone into converting those heat-trapping emissions into another product - such as alternative fuels or even the next generation of cement.

With that in mind, the energy company NRG is teaming up with a coalition of Canadian oil sands producers known as COSIA to fund the $20 million Carbon XPrize.

The prize is being announced Tuesday as part of Fortune's Brainstorm E conference in Austin, Texas, with a call for entrants. The competition will run four and a half years and will culminate with two winners: one who can develop technology converting emissions from coal into a useful product, and a second for someone who can do the same thing with emissions from natural gas.

The winners will receive $8 million each, while four other finalists in each category will receive $500,000 apiece.

"There has been a lot of attention and investment paid to carbon capture and sequestration. But in the middle, there is the utilization piece and there has been a lack of investment," XPrize Chairman and CEO Peter Diamandis told CBS News. "Governments aren't investing significantly. Industry hasn't. There really has been a lack of money flowing into either research or the scaling of these approaches. Why that is, is beyond me. "

Diamandis told CBS News the goal of the project was to "turn on market forces" and offer an "opportunity for people to sell products made out of that carbon dioxide."

"Then, we are adding a pretty powerful tool into the mix that will help us drive down carbon dioxide emissions," he said.

Diamandis acknowledged that the market for alternatives to oil, gas and coal, such as wind and solar, is growing. But with energy demand expected to grow 37 percent by 2040 and many parts of the world continuing to depend on fossil fuels for energy, he and others involved in the prize said it makes sense to focus on salvaging those carbon emissions from fossil fuels, since they represent a majority of emissions.

"Carbon is a unique challenge in that as we move toward a low to zero-emission future, we'll need to continue using fossil fuels to meet current energy demands," Sicily Dickenson, NRG's chief marketing officer, said. "We're using the highly effective XPrize process to engage the world's brightest minds to find a solution that helps solve emissions problems, and simultaneously creates viable products that we use every day."

Participants will have nine months to develop their proposals. By September 2016, a panel of judges will pick 30 semifinalists who then must prove their ideas work in the lab. A year later, in October 2017, 10 finalists will be chosen who then must test them under real world conditions - by actually converting flue gas from a coal-fired or natural gas-fired power plant into their product.

Then in early 2020, the two, grand prize winners will be picked.

Diamandis said he expected to see a lot of ideas from areas where research has already started, including liquid fuels, injecting CO2 as a fertilizer to make algae-based fuels, building materials and advanced materials such as graphene. But he is hopeful the prize will attract "big thinkers" who until now have done little to develop their ideas.

"We anticipate, like any XPrize, a bunch of other ideas that we have just haven't even thought of," he said, referring to XPrizes that have included the $30 million Google Lunar XPrize, the $15 million Global Learning XPrize, the $10 million Qualcomm Tricorder XPrize, the $7 million Adult Literacy XPrize and the $2 million Wendy Schmidt Ocean Health XPrize.

"That is the exciting thing," he continued. "Part of the opportunity this provides is for innovators out there, people out there that have been thinking about something new but haven't been able to get the research grants or they haven't known where to go. They are slightly outside the industry."