World's first carbon-free city

(Business 2.0 Magazine) -- It may seem strange that the emirate of Abu Dhabi, one of the planet's largest suppliers of oil, is planning to build the world's first carbon-neutral city.

But in fact, it makes a lot of financial sense. The 3.7-square-mile city, called Masdar, will cut its electricity bill by harnessing wind, solar, and geothermal energy, while a total ban on cars within city walls should reduce the long-term health costs associated with smog.

Masdar is still on the drawing board -- construction begins in January, with a very tentative completion date of 2009 -- but the result will be watched closely around the world.

"If they can construct a zero-carbon city in this climate, you can do it anywhere," says Richard Young, a research manager with SustainLane, which evaluates sustainable cities and products. "It will have tremendous economic impact."

Indeed, all companies that sign up to take part -- a list that so far includes British Petroleum (Charts), Fiat, General Ele (Charts, Fortune 500)ctric, and Mitsubishi -- will get hefty carbon-credit bonuses, redeemable on the world's two major carbon exchanges.