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Transitions to Alternative Transportation Technologies — A Focus on Hydrogen
hydrogen vehicles into the in-use vehicle fleet, this committee believes that technology-push incentives that are carefully targeted, substantial, durable, coordinated, and progressively phased out over time will be required.1
Targeted incentives, such as federal tax credits or subsidies for hydrogen vehicle purchase, or minimum sales share quotas imposed on manufacturers, would be needed to kick-start the market for hydrogen vehicles, given that these vehicles cannot become commercially viable until extensive learning-by-doing has occurred through sequential vehicle development, and the vehicles go into the mass production needed to achieve scale economies.
Substantial incentives would be required, given that life-cycle costs for hydrogen vehicles are currently so much higher than those for comparable gasoline vehicles. Furthermore, without large incentives, consumers may be reluctant to switch to a new, untested vehicle they are not familiar with, while producers competing in global markets may be reluctant to undertake major and risky investments in transitional technologies.
Durable incentives, lasting 15-20 years or more, would be critical for altering private sector expectations about the long-run payoffs to investments with high up-front costs.
Coordination of incentives would also be important; for example, even if there is a substantial subsidy for hydrogen vehicle sales, auto manufacturers may still not invest in the technology if incentives for required infrastructure investment, or continued basic R&D, are perceived as inadequate. This is a chicken-and-egg problem: vehicle manufacturers will not produce the vehicles without knowing that the hydrogen supply will be there, while hydrogen producers will not supply the fuel without knowing that the demand for it will be there.
Finally, any subsidies should be progressively phased out over time as long-term penetration targets are approached; this limits funding requirements from the government and encourages firms to act more quickly to obtain larger subsidies offered in the earlier years of the program.
The committee also emphasizes that a decision to aggressively push hydrogen must be based on an assessment of the relative risks and benefits of HFCVs, as well as competing technologies. On the one hand, the sooner a hydrogen program is initiated, the greater is the likelihood of achieving large reductions in gasoline consumption and the greater the likelihood that rapidly industrializing countries might transition to hydrogen vehicles before getting locked into conventional gasoline.2 On the other hand, there is the downside risk of pushing HFCVs (or any other specific technologies) before they are really ready or if they turn out not to be the best option, which could be extremely expensive and disruptive. The committee concluded that HFCV technology, while promising, is still in the R&D phase and is not yet ready for a decision to initiate commercialization. That decision may come in a few years, and, as shown in Figure 7.1, expenditures would start to increase rapidly in 2015. Thereafter, the technology must be reassessed every few years during the transition, and policies readjusted, if progress on reducing costs and improving performance differs from expectations. In keeping with the requirement that policies be durable, however, any potential readjustment must not appear to threaten the long-term investments that must be made by industry. Policies must be carefully crafted to be both believable and realistic.
PROS AND CONS OF SUBSIDIES AND QUOTAS
Although government support for basic and applied R&D and fuel distribution infrastructure is necessary, the heart of any program to ultimately promote substantial hydrogen vehicle penetration must be the incentives for auto manufacturers to develop and mass-produce hydrogen vehicles. The two most direct ways to achieve this include a pricing-based strategy, where the market price of hydrogen vehicles is initially heavily subsidized by the government, and a quantity-based approach involving a progressively more stringent sales share requirement for hydrogen vehicles imposed on auto manufacturers. This section discusses the pros and cons of the price- and quantity-based approaches. A final section comments very briefly on broader, technology-neutral approaches to reducing oil use and CO2 emissions.
Price-based Approach (Subsidies)
A price-based approach involves adoption of a schedule of government subsidies, such as the one sketched in Figure 8.1 (which corresponds to the Hydrogen Success scenario in Chapter 6) based on a specified difference in price between fuel cell vehicles and conventional vehicles. From a policy maker’s perspective, a major drawback of the price-based approach is that the future vehicle penetration rates under a fixed, declining schedule for hydrogen vehicle subsidies are very uncertain, because they will vary with future market developments. For example, vehicle penetration might be rapid and substantial if hydrogen vehicle technology evolves quickly, but if not, and/or if consumers and firms are especially reluctant to embrace hydrogen vehicles, penetration rates might be minimal. Put another way, we simply cannot know in advance what subsidy schedule is required to meet a particular future target for hydrogen vehicle penetration.
Moreover, if any transition to hydrogen vehicles is to greatly reduce CO2 emissions over the longer haul, plants supplying the hydrogen must incorporate low-carbon technologies such as renewable hydrogen or fossil hydrogen with carbon capture and storage technologies.
There is enormous potential for future growth in vehicle ownership in countries such as China and India. Vehicle ownership rates are currently less than 10 per thousand in both of these countries compared to more than 700 per thousand in the United States.