SOLANA BEACH -- A local firm will begin to invest in renewable energy projects funded by carbon offsets, a tiny market that could nonetheless grow exponentially if more states and the federal government clamp down on the gases believed to be responsible for global warming.

CE2 Capital Partners of Solana Beach, an asset-management firm, said it and a partner, Energy Capital Partners of Short Hills, N.J., are committing a total of $125 million to wind farms, solar panels and other energy sources that replace fossil fuels, said Harold Buchanan, the chief executive of the joint venture, CE2 Carbon Capital LLC. The investments could also target improved energy efficiency, Buchanan said.

Future revenue will come from companies that pay to offset their own emissions of carbon dioxide, the gas that most scientists believe is causing the planet to heat up an alarming rate, Buchanan said. Carbon dioxide is a natural compound exhaled by animals and released by the burning of fossil fuels. Green plants, meanwhile, consume carbon dioxide and emit the oxygen that animals need.

Because humans have cut down vast forests and increased their use of fossil fuels in recent years, many scientists worry that the process of global warming is accelerating. One apparent consequence, the melting of polar ice caps, is leading to rising ocean levels and threatening a wide variety of species.

Several U.S. companies have pledged to reduce their emissions of carbon dioxide or, failing that, to pay others to do so. CE2's new venture plans to act as a sort of intermediary in those transactions. It will pay for various projects that emit less carbon dioxide and then sell those "credits" for carbon reduction to companies that don't.

The United States has no national mechanism for reducing carbon emissions, though at least 12 states have moved in that direction. Eleven Northeastern states expect to introduce such a "cap-and-trade" system in January.

A California law passed in 2006 requires the state to reduce its emissions of carbon dioxide, methane and other greenhouse gasses to 1990 levels by the year 2020. Starting as early as 2011, the "cap-and-trade" system would allow factories and power plants to exceed certain emissions limits, but only by buying credits from other organizations that reduced their own emissions.

A U.S. Senate bill would have created caps on global-warming gasses, but the bill died last week after Democrats and several Republicans failed to muster the necessary votes. President Bush has said no such bill would become law during his presidency, but Buchanan said the 2008 elections could change the playing field, both in Congress and in the White House, where either Republican John McCain or Democrat Barack Obama is expected to take control in January.

"It's likely under McCain or Obama," Buchanan said.

Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com.