The primary objective of this program is to determine the feasibility of integrating Oxygen Transport Membranes into combustion processes such as industrial boilers and process heaters. The aim is to develop a novel oxy- fuel combustion processes that will significantly reduce the complexity of CO2 capture, reduce the cost of carbon sequestration to less than $10/ton. Even without CO2 capture the oxy-fuel process offers increased thermal efficiency and reduced pollution emissions. The breakdown of the program work consists of the following five major tasks: Task 1. Conceptual Design Task 2. Laboratory Scale Evaluation Task 3. OTM Development Task 4. Economic Evaluation and Commercialization Planning Task 5. Program Management This annual technical progress report summarizes the work accomplished during the first year of the program, January - December 2002.