An oxygen fired fluidized bed combustor system (Oxy-FBC) is provided. The system provides means of producing a nearly pure stream of carbon dioxide for storage at high efficiency by controlling the oxygen content within certain regions of the combustor to control the rate of heat release allowing efficient transfer of heat from the combustor to the boiler tubes while avoiding excessively high temperatures that will cause ash melting, and simultaneously remove sulphur from the combustor via sorbents such as limestone and dolomite. The present invention utilizes a coarse oxygen carrier bed material to distribute heat and oxygen throughout an Oxy-FBC, while injecting fine sulphur sorbent that will continuously be removed from the bed.