CONSULTING AGREEMENT

EXHIBIT 10.49

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (this “Agreement”) is made and entered into this 1st day of February 2005 (the “Effective Date”) by and between Catalytica Energy Systems, Inc., located at 1388 Tech Blvd, Gilbert, Arizona 85233 (hereinafter referred to as “CESI”) and David Merrion, having an address at 4526 Lakeshore Court, Brighton, Michigan 48116 (hereinafter referred to as “Consultant”) (each a “Party” and together the “Parties”)

WHEREAS, CESI is involved in developing solutions to diesel engine emissions;

WHEREAS, Consultant has extensive experience in the diesel engine emission a technology;

WHEREAS, Consultant is a director of CESI and has been incurring substantial time and costs in assisting CESI and its executive officers with diesel engine emission technology issues; and

WHEREAS, CESI desires to retain Consultant for assistance with diesel engine emission technology issues and related matters, and Consultant is willing to provide such assistance in accordance with the terms of this Agreement;

NOW, THEREFORE, THE PARTIES AGREE as follows:

During the term of this Agreement, Consultant shall make available to CESI his services to advise and otherwise assist CESI and its executive officers or their designees as required from time to time in the area of diesel engine emission technology and related areas, including:

CESI shall make available to the Consultant any pertinent files, records or information to assist Consultant in providing the services hereunder.

CESI agrees to pay Consultant, and Consultant agrees to accept for Consultant’s services under this Agreement quarterly compensation in the amount of Seven Thousand Five Hundred Dollars

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($7,500), plus approved travel and other reasonable out-of-pocket expenses incurred in rendering services hereunder. CESI shall make all payments to Consultant for each quarter within Ten (10) days after the commencement of such quarter, with the first quarter’s compensation payable on a prorated basis commencing from the Effective Date and payable within Ten (10) days thereafter. All expenses submitted to CESI for payment in accordance with this paragraph shall be paid within thirty (30) days of receipt of an invoice from Consultant itemizing the expenses incurred in rendering such services. All payments, including reimbursements for actual expenditures, shall be included in Consultant’s gross income as compensation for services rendered and accordingly reported on Consultant’s IRS Form 1099. Consultant is responsible for payment of all state and federal taxes (including FICA taxes) on income earned under this Agreement, as none will be withheld by CESI.

It is agreed that Consultant is to have complete freedom of action as to the details, methods, and means of performing the consulting services. It is further understood that Consultant has contracted with CESI only for the purposes and to the extent set forth in this Agreement and his relation to CESI is that of an independent contractor, and Consultant shall be free to dispose of such portion of his entire time, energy, and skill as Consultant sees fit and to others as Consultant deems advisable so long as same does not create a conflict of interest between CESI and such others. Consultant shall not be considered under the provisions of this Agreement or otherwise as having a status as an employee of CESI nor shall Consultant be entitled hereafter to participate in any plans, arrangements, or distributions by CESI relating to any pension, deferred compensation, bonus, stock bonus, hospitalization, insurance, or other benefits extended to employees, since Consultant is performing the service hereunder as an independent contractor. Nothing herein shall prohibit Consultant from participating in any plans or benefits provided in his capacity as a director of CESI to the same extent as any other director of CESI.

This Agreement shall come into being on the Effective Date and shall terminate on December 31, 2005. This Agreement may be renewed on an annual basis with the consent of both Parties. In addition, if Consultant or CESI breaches any of the terms or conditions of this Agreement, the other Party may, without foregoing thereby any other rights or remedies it may have, at its option, terminate this Agreement by providing notice of such breach which is not cured within Ten (10) days of receipt of such notice of breach. Termination under this paragraph shall not affect Consultant’s obligations under Paragraphs 5, 6 and 7 below. Further, in the event of any such early termination, Consultant shall be paid compensation accrued prior to termination, but Consultant shall not be entitled to any other payment on account of such termination, whether by way of claims for damages, or for loss of anticipated profits, or otherwise.

All work performed for CESI by Consultant hereunder (including, but not limited to, all information, data, reports, working notes, drawings, design, and specifications developed or prepared by Consultant in connection with such work) shall become the property of CESI, unless specifically otherwise agreed upon in writing by CESI and Consultant.

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Consultant shall use his best efforts and exercise utmost diligence to protect, guard, and maintain the confidentiality of Confidential Information (as defined in Paragraph 10). Except as required in performance of Consultant’s services for CESI, Consultant will never directly, indirectly, or otherwise, use, permit others to use, disseminate, disclose, lecture upon, or publish articles concerning Confidential Information, without CESI’s prior written consent. Further, Consultant agrees to return Confidential Information supplied by CESI and any copies thereof upon completion of services relating to the Confidential Information or upon CESI’s written request to do so.