Hailed as "tomorrow's energy," hydrogen has the potential to provide a reliable, secure, and clean source of power.1 Despite hydrogen's enormous potential, the debate in Washington is stalled largely around the subject of fossil fuels.
Unlike oil, whose production is expected to possibly peak in the next 20 years, hydrogen can be produced just about anywhere from any hydrogen compound, including conventional fuels, biomass, and water. Since its production is not tied to politically sensitive parts of the planet, hydrogen also has the potential to make Americans more secure. And, because it generates electricity through an electrochemical reaction instead of simple combustion, hydrogen can help to reduce air pollution and greenhouse gas emissions linked to global warming.
The Bush administration's FreedomCAR initiative is an encouraging step toward a transportation system powered by hydrogen (discussed in a companion paper to this report).2 The energy bill that failed to move through Congress last year also contained some provisions to accelerate the use of vehicles powered by fuel cells.
This year, energy is likely to be once again in the forefront of the legislative agenda. At the top of the list is the question of whether to regulate greenhouse gases (a problem that the use of hydrogen as a fuel would help to solve), as well as such hot button issues as drilling in the Arctic National Wildlife Refuge and fuel economy standards.
Given hydrogen's enormous potential to promote energy security and environmental quality, there is a clear role for the federal government to play in its promotion. But building an economy based on hydrogen will require a much greater commitment of resources and political will than either Congress or the White House has thus far managed to muster.
The federal government has played a small but important role in the development of hydrogen and fuel cells since the 1960s. Much of this effort has been confined to applications such as spacecraft or defense, where reliability is paramount and cost less crucial. The National Aeronautic and Space Administration (NASA) pioneered federal support of fuel cells as an efficient, reliable source of electric power onboard spacecraft. Because they are light, compact, produce little waste heat, and can produce electricity far from any stationary power source, the U.S. Department of Defense (DOD) has advanced fuel cell technology as a way to promote combat readiness, particularly in remote regions.
While they can be used to power spacecraft, communication devices, and weaponry, fuel cells can also serve as a clean, efficient source of electric power. To promote their development as an alternative to today's generation facilities powered by fossil fuels, since FY95 Congress has provided about $2.5 million annually to the Climate Change Fuel Cell "Buy Down" program. (In FY 2003, the appropriation reached $7.5 million.) A joint effort of DOD, the Department of Energy (DOE), and the Department of the Army (DOA), the program is designed to help combat climate change and buy down the cost of fuel cell power by helping private sector utilities, energy-service providers, and end users buy and use fuel cells.3
With the increases for hydrogen and fuel cells contained in the president's FreedomCAR initiative, federal fuel cell and hydrogen programs combined come to about $230 million per year. To put this figure in perspective, however, consider that the private sector in recent years has invested between $1 billion and $2 billion in hydrogen and fuel cells annually.
Much of this private investment is in transportation technology. For instance, DaimlerChrysler in 1999 announced a five-year plan to invest $1.4 billion in fuel cell vehicles powered by hydrogen. Automakers are deploying hundreds of engineers to work on fuel cell technology. Honda and Toyota recently inaugurated the world's first fuel cell vehicle lease program in both Japan and California. But such vehicles, which the Japanese government is paying from $6,500 to $9,800 a month to lease, are still not sold commercially.
Hydrogen's potential extends far beyond vehicles. It can be harnessed to generate electricity for homes, industry, and offices, leaving little more than steam as a by-product. Hydrogen fuel cells are also capable of powering portable devices -- camcorders and computers -- thereby replacing conventional batteries.
The emerging hydrogen and fuel cell industry eventually can and must become self-sufficient. At this early stage, however, a number of unresolved technical issues compel a government-industry partnership in research, product testing, and commercialization.
Key among these is the lingering issue of cost. Carmakers have not yet figured out how to make an affordable fuel cell vehicle. And while they serve as an effective source of energy for spacecraft and weaponry, fuel cells are still too expensive for more conventional applications. Until they become competitive with today's power sources, energy companies will remain reluctant to make the enormous investments required to produce and supply enough hydrogen to power the economy.
The private sector is unlikely to resolve these issues on its own. We believe a 10-year program proposed by a coalition of fuel cell companies and institutions to accelerate the commercialization of fuel cells and hydrogen provides the best direction for federal policy.4 Under this program, federal funding would roughly double from its current amount of $230 annually to about $550 million annually. In addition to providing a substantial increase in investment in research, the plan identifies four priorities:
- Create hydrogen communities to test hydrogen delivery methods;
- Run federal facilities on fuel cells and buy fuel-cell friendly private power;
- Provide tax credits and subsidies for fuel cell powered equipment; and
- Remove regulatory barriers to fuel cell use.
There is a strong precedent for such concerted national action. Federal support has been an essential part of the commercialization of many energy technologies beyond firewood. The same rules should apply for hydrogen and fuel cells. A comprehensive 10-year support program for fuel cells and hydrogen can be accomplished affordably, and might well cost less than the investment in other conventional and non-conventional energy options. If we persist, the payoff is beyond calculation. The following four-part plan provides a blueprint to accelerate the hydrogen economy.
The biggest barrier to the hydrogen economy is the challenge of getting hydrogen economically to the point of use. Unlike coal or petroleum, which exist mostly as deposits in the ground, hydrogen must be extracted from the substances (water, hydrocarbons such as natural gas, methanol, and gasoline) in which it occurs.
At present, the most viable way to make hydrogen is to extract or "reform" it from natural gas. It can also be extracted from methanol, gasoline, and many other compounds. This approach has the advantage of harnessing existing infrastructure to make, store, and supply hydrogen, but it does little by itself to reduce our reliance on fossil fuels.
It is possible to produce hydrogen from water via electrolysis: running an electric current through water. But until a greater percentage of the nation's electricity is derived from renewable resources, generating hydrogen from electric grid power similarly does little to stem our reliance on fossil fuels or to reduce emissions of smog and gases which are linked to global warming such as such as carbon dioxide, a byproduct of burning any carbonaceous (fossil) fuel, and nitrogen oxides.5 Down the road, it will become increasingly economical to produce hydrogen from water using electricity generated from wind and solar power (photovoltaics, direct solar power, solar thermal, and biomass).6
Until then, hydrogen proponents will remain divided over the best way to make and supply it. Most environmentalists favor making it from renewable fuels. Industry for the most part prefers to harness the existing energy system to generate electricity from coal, natural gas, or nuclear-fired facilities. Further down the road, a third approach, which also harnesses the existing infrastructure, is to use fuel cells that extract hydrogen and generate electricity directly from a hydrocarbon source, such as natural gas, methanol, or gasoline. Such systems are currently in development.
Fuel cells are a family of devices that convert hydrogen into energy through electrochemical reactions instead of simple combustion. During the past seven or eight years, fuel cell technology has emerged at the cutting edge of hydrogen energy development. Called at times the "microchip of the hydrogen age," fuel cells are the key to ample energy from secure, renewable sources. Nearly silent, they can be as much as two to three times as efficient as a conventional engine.
To accelerate the development of a hydrogen future, it is important to test approaches that rely on the existing infrastructure as well as novel methods that generate hydrogen on-site and onboard passenger vehicles. Pursuing this multiple pathway approach will better allow the gradual buildup of hydrogen fueling infrastructure at low cost.
A promising model for testing the multiple pathway approach comes from the technology and communications industry. To test broadband, telecommunications companies created pilot neighborhoods and commercial districts. To identify the best method to deliver hydrogen to residents and consumers, we support a federal "hydrogen community" program. Federal grants would help the private sector test and evaluate existing options to produce and supply hydrogen for a variety of end uses.
Hydrogen communities could serve to test, for example, how well industrial areas or housing subdivisions powered by fuel cell power plants compare to those served by the traditional electricity grid. Similarly "hydrogen power parks," could provide a centralized location to install fuel cell systems to evaluate which fuel cell-based power generation strategies work best.
Similar methods can be used to test fuel cell transportation options. Vehicles propelled by fuel cell motors will be more than twice as efficient as cars powered by conventional combustion engines. But fuel cell vehicles powered by hydrogen stored on board the vehicle can only travel less than 200 miles before refueling (as opposed to conventional cars which can go twice that far on a tank of gasoline). Limited driving range is among the lingering barriers to consumer adoption of fuel cell vehicles. Research is under way on new hydrogen storage methods, and this should be accelerated. To extend the utility of the current generation of vehicles, we support federal financial support for "hydrogen corridors," strings of hydrogen fueling facilities enabling drivers to fill up in their hometown as well as their final destination without running out of (hydrogen) gas.
Combined, hydrogen communities, hydrogen corridors, and hydrogen power parks can help to speed the hydrogen economy by resolving lingering questions about the best way to produce and distribute hydrogen to consumers and producers. But, except in limited markets, industry and consumers will not purchase products powered by fuel cells until the private sector figures out a way to bring down their cost.
Although they have provided power and drinking water to every manned space program, fuel cells remain too costly for most conventional applications. Federal research on cost reduction should be expanded.
The federal government is well positioned to help bring down the cost of fuel cells in other ways. It is the nation's largest energy consumer (using 1.5 percent of the nation's electricity at a cost of $8 billion per year), and much of the power it purchases is used to light, heat, and cool federally owned buildings at a cost of $3.4 billion per year.
Although the federal government is required to follow standards to promote energy efficiency and Congress has helped several agencies develop fuel cells, there are no requirements that govern fuel cell use in federal facilities. For that matter, the federal government has undertaken no substantial recent analysis of the potential for fuel cells to efficiently serve the government's power needs.
The benefits of fuel cell use in federal facilities are likely to be quite substantial. When both the fuel cell's heat and electricity are harnessed, a fuel cell system's efficiency can exceed 80 percent, with unmatched environmental performance; systems can be configured to operate independent of the power grid, increasing reliability.
Standards that require their use in federal buildings would likely help the government to save energy, save money, and reduce the private-sector cost of fuel cell development and manufacture. In addition to adopting federal standards for fuel cell use in federal facilities, the federal government should be required to purchase 200 megawatts of fuel cell power annually after 2006 and purchase fuel cell vehicles for half the government's fleet needs after 2010.
Congress should also commit more money to cost-sharing programs that promote private sector development of electricity plants powered by fuel cells. In all but one year since 1995, DOD and DOE have supported the development and commercialization of domestic stationary fuel cell systems through the Climate Change Fuel Cell Buy Down Program. This program, which provides grants to federal facilities and private power producers, has enjoyed bipartisan congressional support since its inception, and it has significantly aided commercialization of the first generation of fuel cell systems by supporting the purchase of 26 megawatts of fuel cell power.
The Buy Down program deserves expansion. Over the next three to four years, the appropriation should increase to $35 million annually as one important government lever to speed up the introduction of less- or zero-polluting, hydrogen-based energy technology.
Indirect federal incentives including tax credits and subsidies can help to make fuel cell power better compete with today's energy technologies. Comparable programs have proven successful in the case of other emerging energy technologies. Perhaps the best recent evidence of the effectiveness of market support programs is the federal wind production tax credit. Wind energy proponents credit the program with stimulating the development of hundreds of megawatts' worth of wind power projects.
The now-defunct energy bill contained a variety of tax incentives that would help to speed the commercialization of fuel cells and hydrogen. Among them was a measure to provide consumers up to $4,000 in tax credits for advanced vehicle purchases, including fuel cell vehicles powered by hydrogen. The proposal also would have required federal fleets to include fuel cell-powered and other advanced technology vehicles. Provisions to promote power generation from fuel cells were also on the table. The fuel cell industry would benefit from a tax credit of one-third of the cost up to $1,000 per kilowatt for fuel cell systems of any size larger than 500 watts. Additional tax credits are appropriate for a business or commercial property that utilizes a fuel cell for both heat and power.
To promote private generation of fuel cell power, we propose a tax credit program comparable in approach to consumer credits for fuel cell vehicles which were contained in the proposed legislation that failed to move forward in 2002. In addition to tax credits for power generation, PPI also supports roughly comparable tax credits for purchases of portable hydrogen-powered equipment (for example, lawn mowers, outboard engines, power tools, and construction site equipment) where they replace conventional combustion systems.
In addition to tax credits and subsidies, it will be necessary to remove or modify some regulatory barriers that currently impede power generation from fuel cells and other sources of distributed generation. Among the most pressing are those issues surrounding "interconnection" and access to the grid.
In most states, access to local power transmission lines is controlled by the local utility. A utility that wants to limit competition from solar, wind, or fuel cell power generation can impose technical requirements or financial terms that can be a barrier to market entry. These issues are lumped together under the term "interconnection." Artificial barriers to competition must come down if small advanced technologies are to fulfill their commercial promise.
While many states have recognized the issue and some have tried to address the concerns of distributed energy, there are no consistent responses. The Progressive Policy Institute elsewhere has called on the Federal Energy Regulatory Commission to "set enforceable reliability standards" and also to "require Regional Transmission Organizations (RTOs) to open the grid to all users on reasonable terms." Doing so will help significantly to promote the development of fuel cells to generate power.7
Fuel cells, like other sources of distributed power, have the added ability to generate electricity when they are not being used to power the products for which they are intended. In the future, parked fuel cell cars or buses might be harnessed to feed electricity to the grid (if the avoided cost of grid electricity justifies it) or to fill a power need off-grid. The first such project is just now getting underway in Canada.
One of the barriers to this concept is the lack of more precise metering and crediting methods. If purchasers of products powered by fuel cells are to have sufficient incentive to return power to the grid, there must be a way to measure the amount of power returned. Net metering is such a tool, in effect allowing a consumer's electricity meter to run in reverse when his products are sending electricity back to the power grid. Net metering and similar concepts could provide consumers with powerful incentives to purchase and use products powered by fuel cells.
Renewable portfolio standards (RPS) can also promote the use of fuel cells. Such standards require states or countries to insure that a minimum amount of renewable energy -- from wind, solar, hydropower, or fuel cells -- is included in the portfolio of electricity resources. In addition to RPS, "system benefit" charges -- fees levied by states or nations on private generators -- can serve as an important source of funding for the development and use of fuel cells and other distributed generation technologies. Many states have already adopted this approach.
As ultra-clean fuel cells reach the marketplace, federal and state agencies would provide a powerful stimulus to fuel cell installations by updating existing emission standards for power generation systems (for example, New Source Per-formance Standards) to reflect fuel cells' emission performance.8
In addition to these measures, the promotion of fuel cells will require the modification of a long list of private and governmental product standards, safety codes, and best practice recommendations governing their design, installation, and use. Currently, the U.S. industrial hydrogen market produces and transports hydrogen safely for use in many different industrial applications. But many of the technologies and safety procedures are proprietary and not economical or suitable for small-scale residential and commercial use.
Standard-setting bodies whose codes govern residential and commercial construction should be encouraged to consider and adopt building codes that cover hydrogen applications in fuel cell vehicles. Similarly, while hydrogen handling has proved safe in many specialized and industrial applications, additional research is necessary to insure that consumers can safely fuel, handle and store their vehicles.
This work must be done on an accelerated timetable, or codes and standards will become a barrier to commercial success. These revisions must be introduced to code officials; integrated into national, state, and local codes; and publicized among insurers, designers, installers, specifying engineers, and other code users. Harmonization of standards at the international level would provide a substantial additional impetus to commercialization activities.
As the foregoing discussion suggests, a number of different federal and state agencies and private organizations are carrying out research and initiatives to promote the acceleration of fuel cells and hydrogen. To promote greater coordination and reduce overlap and duplication, a formal mechanism is needed to coordinate, and where appropriate, lead these efforts. Whether the coordinating body resides in the White House or takes the form of a public-private partnership, an entity with real authority is needed to coordinate hydrogen and fuel cell programs among federal agencies; conduct outreach to state and local efforts; promote greater technology transfer between defense and civilian agency programs; and work closely with the private sector, including fuel cell developers, auto-mobile companies, distributed generation companies, fuel cell suppliers, hydrogen companies, and others.
Promoting greater government and private-sector cooperation is a promising start. But it also is imperative to spur consumer interest and confidence in these emerging technologies. One approach pioneered by the California Fuel Cell Partnership is to create a hydrogen curriculum for students at all levels. The curriculum seeks to target students on the assumption that they represent the next generation of fuel cell developers, company managers, and customers.
In addition to programs aimed at schools, public outreach activities and even contests that reward fuel cell innovation represent potential vehicles to promote public awareness and spark interest in these new technologies. In particular, these campaigns should address:
- lack of public familiarity with distributed energy generation technologies and their capabilities;
- lack of understanding of the way in which unreasonable or inappropriate interconnection requirements impede fuel cell and hydrogen delivery options;
- lack of familiarity with installation procedures;
- codes, standards, and recommended practices that may not refer to fuel cells, or that are appropriate for only some types of fuel cells;
- insufficient capital for commercialization;
- unreasonable connection fees;
- inappropriate pricing practices and tariff structures; and
- current business models and practices.
The emerging fuel cell industry is seeking to launch a multi-year effort to educate the public on these issues. The campaign would coordinate and support similar endeavors already under way in the field by companies, nonprofit organizations, universities, and government agencies at all levels; identifying education and outreach targets among key audiences; developing information and outreach programs targeted to these audiences; and fostering education of the media.
The private sector is showing a strong interest in hydrogen and fuel cells as the dominant fuel source of the 21st century. But concerted government action is necessary to commercialize these new technologies.
The race to build a hydrogen-based economy will require far greater government action and commitment of resources than programs that merely build cleaner cars. At a minimum, it will be necessary to double the federal government's current annual commitment to programs that promote the commercialization of hydrogen and fuel cells. A comprehensive 10-year support program for fuel cells and hydrogen can be accomplished affordably, and might well cost less than the investment in other conventional and unconventional energy options.
That being said, it is clear that the hydrogen future will not occur overnight. Even with federal support, it will take time to replace entrenched conventional energy technologies. As we've noted elsewhere, "replacing an entire technologically advanced energy system with something else is a huge undertaking, spanning decades. It is like trying to change the course of a supertanker with kayak paddles."9
During the transition to a hydrogen economy, consumers will face a bewildering array of energy options based both on existing fossil fuels as well as fuel cells, hydrogen, and other emerging technologies such as fuels made from biomass. But we must rise to the challenge and muster the political will to persist in our quest for a hydrogen future. If we persist, the payoff is beyond calculation.
In addition to government action, there clearly is a role for every sector of society in preparing for a hydrogen future. A successful program will involve cooperation among developers, suppliers, and financiers; governments and quasi-governmental organizations; non-governmental organizations; and private citizens, whose openness to change will be a critical factor. Such a plan offers a way for the federal government, working in close cooperation with private partners, state and local government, and private citizens to accelerate the hydrogen economy.
1. Hoffmann, Peter, Tomorrow's Energy: Hydrogen, Fuel Cells, and the Prospects for a Cleaner Planet, The MIT Press, Cambridge, Mass., 2001.
2. Sperling, Daniel, "FreedomCAR and Fuel Cells: Toward the Hydrogen Economy," Progressive Policy Institute, Washington D.C. January 2003, http://www.ppionline.org/ppi_ci.cfm?contentid=251176
&knlgAreaID=144&subsecid=304.
3. U.S. Department of Defense (DOD). Climate Change Fuel Cell Awards for FY00, http://dodfuelcell.com/climate_change.html.
4. Fuel Cells and Hydrogen: The Path Forward, compiled by Robert Rose, Breakthrough Technologies Institute, Inc., www.fuelcellpath.org, September 5, 2002. More than 40 companies and interest groups now endorse the plan.
5. In a combustion engine, nitrogen oxides are created from atmospheric nitrogen by the heat of
combustion. This is true for any fuel, including hydrogen, although in the case of hydrogen, the amount of nitrogen oxide (NOx) produced is relatively small due to relatively low temperature of combustion. Hydrogen produces
no NOx at all when it reacts electrochemically in a fuel cell.
6. In the future, hydrogen may be made from plant-like processes that mimic photosynthesis, as well as methods yet to be discovered.
7. Fox-Penner, Peter, "Clean Growth: A Balanced Energy Policy for the 21st Century," Progressive Policy Institute, Washington D.C., October 2001,
www.ppionline.org/ppi_ci.cfm?contentid=3833
&knlgAreaID=144&subsecid=900007.
8. Swift, Byron and Jan Mazurek, "Getting More for Four: Principles for Comprehensive Emissions Trading," Progressive Policy Institute, Washington D.C., October 2001,
www.ppionline.org/ppi_ci.cfm?contentid=3857
&knlgAreaID=116&subsecid=149.
9. Hoffmann, Peter, Tomorrow's Energy: Hydrogen, Fuel Cells, and the Prospects for a Cleaner Planet. The MIT Press, Cambridge, Mass., 2001, p. 14.
