under the quantity-based approach could be addressed by allowing firms to trade credits for hydrogen vehicle sales among themselves so high-cost manufacturers can opt to be below the standard by purchasing credits from other firms that exceed the standard.
The quantity-based (quota) approach may also face far more resistance from auto manufacturers, because they (or their customers) must bear the losses from selling hydrogen vehicles while their life-cycle costs are still above those for comparable gasoline vehicles; in contrast, under the subsidy approach these losses are ultimately borne by the general taxpayer.
The differences between price- and quantity-based approaches illustrates a fundamental tension between meeting a future penetration target for hydrogen vehicles with more certainty, and keeping down the possible costs of the program. A further option is to combine elements of the two approaches in a hybrid policy. For example, a relatively modest quota on hydrogen vehicles could be combined with subsidy inducements to go beyond the quota, which producers will take advantage of if future market developments favor hydrogen vehicles. Alternatively, a fairly stringent sales share quota could be mandated, but combined with a “safety valve” that allows manufacturers to pay a penalty in lieu of meeting the standard, which they will take advantage of if future market developments are more favorable to other technologies than to hydrogen.
One way to reconcile the contradiction between wanting to move ahead rapidly but lacking sufficient confidence that hydrogen is the “right choice” would be a phased approach; the decision to scale up the policy to a national level would be contingent on the success of “lighthouse” pilots, as discussed in Chapter 6. In this regard, a government procurement approach, where state and municipal government vehicle fleets transition to HFCVs, might play a useful role in helping with early development of the market. Such an approach would provide a way to avoid rapidly escalating costs if the technology did not advance as expected, but it would also introduce uncertainty in private sector planning.
Whether or not policy makers choose to push HFCVs aggressively, there are a variety of broader (technology-neutral) options to reduce greenhouse gas emissions and oil use that have been implemented, or are under consideration, at both federal and state levels in the United States, and in other countries. These broader polices do not attempt to pick a technology, which, as we know from past experience, might significantly distort the market. Some of these policies are sector specific, whereas others are economy-wide; some are price based and others are quantity based; some are based on performance standards.
For example, fuel economy or vehicle greenhouse gas standards that increase steadily in stringency over time ensure that emerging efficiency technologies are applied to fuel economy improvements instead of acceleration enhancements. Such improvements would help to enable any of the major long-term alternatives for powering vehicles in the future without favoring one technology (e.g., hydrogen) over any other (e.g., biofuels). Vehicle performance standards could include a requirement that some number of vehicles be zero or near-zero emitting, which would favor biofuels, batteries, or hydrogen vehicles over conventional gasoline vehicles, but leave it to the market to determine the most viable option. Such a requirement could be pegged, for example, to the hydrogen vehicle penetration rates achieved by HFCV-specific policies described above; this would guarantee that these vehicles were low-emitting, but not necessarily hydrogen fuel cell vehicles.
Another policy option is to raise gasoline taxes. Increasing per-mile costs of driving would discourage unnecessary trips and promote fuel economy and alternative fuel vehicles, including hydrogen. Thus, emissions and oil use could be reduced throughout the transportation sector. However, there has been considerable opposition to higher fuel taxes in the past.
Market-based greenhouse gas control instruments—namely, cap-and-trade or CO2 taxes—are also being implemented or under consideration both here and abroad. If these instruments are applied economy-wide, they can effectively exploit all low-cost emission reduction opportunities. However, for reasons already discussed, these policies most likely would not provide sufficient pricing incentives by themselves to speed the adoption of major transformational technologies, such as fuel cell vehicles. If carbon emission allowances are allocated through an auction, cap-and-trade and tax proposals under consideration in the United States could generate $50 billion to $100 billion or more worth of annual allowances or government revenue. Many of these legislative proposals set aside allowances or government revenue to fund technology programs or incentives, providing a potential stable funding source for the types of technology programs discussed earlier.
CONCLUSION: Sustained, substantial, and aggressive energy security and environmental policy interventions will be needed to ensure marketplace success for oil-saving and greenhouse-gas-reducing technologies, including hydrogen fuel cell vehicles.