A nano-composite of negatively charged carbon nanoparticles (Emperor 2000 (TM)), chitosan, and nano-palladium is produced in a one-step hydrothermal process with oxalate reductant. In voltammetric measurements strong pH effects on capacitance and Faradaic current responses are observed due to chitosan forming a shell (or "hydrothermal wrapping") around both carbon nanoparticles and palladium particles in the water-based hydrothermal process. In spite of the wrapping, some Pd-catalytic processes are observed, but with pH controlling the rate. The shell around Pd nanoparticles appears to only allow small molecule reactants such as H-2 and O-2 but not formic acid or methanol to reach the active catalyst surface. Membrane-transport limited and reaction-type limited catalytic electrochemical responses are observed with high selectivity. Implications of small molecule selectivity and mechanistic selectivity in suppressing cross-over losses in fuel cell technology are discussed. (C) 2013 Elsevier Ltd. All rights reserved.