Transitions to Alternative Transportation Technologies: A Focus on Hydrogen (2008)

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9 Advantages and Disadvantages of a Transition to Hydrogen Vehicles in Accordance with the Time Lines Established by the Budget Roadmap The transition to hydrogen vehicles in accordance with the ANTICIPATED BENEFITS ANd COSTS of the time line established by the budget roadmap will have spe- Transition cific advantages and disadvantages. This chapter addresses As explained in Chapter 2, a successful transition to those considerations. Throughout this chapter, it is assumed hydrogen fuel cell vehicles, or a successful transition to any that the transition follows the maximum practicable scenario revolutionary new personal transportation system, would be identified by the committee and discussed in detail in Chap- a long-term undertaking facing both significant technical and ters 6 and 7: Case 1, Hydrogen Success. The reader should market risks whose details are impossible to predict. One keep in mind that the committee considers that this scenario general statement can be made, however: the anticipated represents the fastest possible transition to a significant benefits are almost all long term and strategic in nature, while number of hydrogen fuel cell vehicles (HFCVs), and that the required investments begin (or continue) immediately the numbers and timing discussed in this chapter are not and must be sustained for many years before their benefits are to be viewed as the committee’s projections of what will manifest. This fact creates a natural tension between short- necessarily happen. term costs and long-term benefits that must be addressed if The reader should also keep in mind what this chapter is the United States is to make such a transition. Historically, not. First, this chapter does not address the risks of technical federal funds have been used to lessen or overcome the ten- shortfalls or failures themselves. These “technical” risks are sions in dealing with such long-term investments (see, for addressed via the various cases analyzed and discussed in example, Griliches, 1960; Mansfield, 1966). Chapter 8 of this Chapter 6, especially via Case 1b, Hydrogen Partial Success. report discusses some federal government actions that might Instead this chapter focuses on the broader advantages and facilitate the transition to hydrogen fuel cell vehicles. disadvantages of the transition, assuming it is accomplished Most of this chapter relies on the committee’s analysis in accordance with the time line and budget roadmap of to identify the advantages or benefits that would result from Case 1. a successful transition to HFCVs and to set out the costs Second, the reader should note that this chapter also or disadvantages that could be expected. It also discusses does not present a discussion of alternative technical or briefly and recommends for further study some broader public policy approaches to meeting the twin policy goals potential benefits and risks that may be attributable to an of reduction of oil imports and of carbon dioxide (CO2) HFCV transition, but whose detailed analysis was outside emissions. As with the risks of technical shortfall or failure this committee’s scope. above, some alternative approaches (efficiency improve- ments, biofuels) are analyzed in detail and discussed in the various cases presented in Chapter 6, especially Cases 2 and Advantages or Benefits 3. Other alternative approaches have been discussed briefly, The primary benefits expected from a successful transi- without detailed analysis, in various sections throughout this tion to a hydrogen-based transportation system are captured report and recommended for further study if the committee as two major policy goals that formed the basis for this regarded this as appropriate. Again, as above, the reader study: should keep in mind that this chapter focuses only on the broader advantages and disadvantages of the transition itself, 1. Reductions in imports of oil and assuming it is accomplished in accordance with the time line 2. Lower CO2 and other greenhouse gas emissions. and budget roadmap of Case 1. 108 

ADVANTAGES AND DISADVANTAGES OF A TRANSITION TO HYDROGEN VEHICLES 109 The committee also notes that additional benefits may accrue trolysis of water (using grid electricity, renewable energy, (e.g., public health benefits from reduction in air pollution) or nuclear power; see Table 6.1). Although those fuels and from this transition; such other benefits are discussed briefly pathways that rely more heavily on indigenous U.S. energy in this chapter. However, the two primary benefits above, resources (e.g., coal gasification, biomass gasification, and called out in the statement of task, were the focus of the water electrolysis with renewable or nuclear power) today committee’s effort. require additional development, all represent alternatives that might be able to mitigate the impact of a significant disrup- tion in the availability of crude oil or natural gas imports. Reduced Oil Consumption It is difficult for the U.S. oil industry to increase domestic Reductions in CO2 Emissions oil production due to declining production from existing oil fields, environmentally restricted acreage, and the complex- As shown in Figure 6.33, the alternative technologies ity of new exploration and production projects, especially reviewed by the committee—(1) evolutionary efficiency offshore. Therefore any significant reduction of imports improvements to vehicles with internal combustion engines probably would require a concomitant reduction in demand and (2) biofuels—have the potential to achieve significant for oil. Reduction of oil imports offers two main benefits to reductions in greenhouse gas emissions by 2020. The former the United States: has been incorporated in the reference case until 2020 and could continue to improve efficiency thereafter. However, 1. Improved energy security, at least to the extent that one can also see in Figure 6.33 that growth in the benefits reduced oil imports are accompanied by the development and from these alternative technologies could slow significantly adoption of a more diverse set of indigenous energy sources in subsequent years under the scenarios used in this study, for U.S. transportation, such as coal, nuclear power, biofuels, while the benefits from adoption of HFCVs, whose numbers or other renewable resources; and begin to be significant in the 2020-2025 time frame, are on 2. Potential for long-term reduction of the outflow of a path to increase rapidly throughout 2035-2050 under the dollars currently required to pay for the nation’s energy maximum practicable scenario. Although it is difficult to needs, especially as indigenous sources of energy are even- predict many years into the future, the sense of the committee tually exploited to produce hydrogen. It is also possible that is that these trends seem reasonable: the impact of biofuels in decreased pressure on world oil markets may contribute to a the United States is limited by available land and water, and reduction in the price of the oil that must still be imported. improvements to ICE vehicles are limited by considerations such as cost, how much more efficient engines can be while The U.S. transportation sector consumed 28 quadrillion still meeting durability and environmental requirements, and British thermal units (Btu) (28 quads) of energy in 2006, rep- how much weight can be removed from the vehicle while still resenting 28 percent of total energy consumed. Furthermore, meeting consumer preferences. During that same period, the 96 percent of the energy used in the transportation sector benefits from HFCVs have the potential to continue grow- was consumed in the form of petroleum products (DOE- ing, due both to technology improvements in these relatively EIA, 2007, Tables 2.1a and 2.1e). Furthermore, in 2006, new systems and to increasing market penetration. Thus, a about two-thirds of the crude oil used in the United States transition to HFCVs offers the potential, if successful, to was imported (12.3 million barrels per day out of a total of eventually achieve benefits exceeding those of the alterna- 20.6 million barrels per day, or approximately 60 percent), tive technologies. a proportion that has grown steadily since the early 1980s Finally, it should be noted that simply transitioning to (DOE-EIA, 2007, Diagram 2 and Figure 5.1). hydrogen fuel cell vehicles will not necessarily result in As shown in Figure 6.32 in Chapter 6, the alternative the magnitude of CO2 reductions shown here. Those reduc- approaches studied by the committee (internal combustion tions will depend on the pathways via which hydrogen is engine [ICE] improvements and biofuels) offer significant produced, as well as on the higher efficiency of HFCVs rela- reductions in oil consumption by 2020, but HFCVs are on the tive to conventional gasoline engines. As noted in Chapter path to achieve much more significant savings in the 2035- 6, during the transition period when hydrogen is assumed 2050 time frame, at a time when the rate of improvement in to be produced via reforming of natural gas, the life-cycle oil import reduction due to biofuels and ICE improvements greenhouse gas emissions of HFCVs are still lower than would be slowing. those of conventional vehicles, thanks largely to the much A further benefit (although not unique) of the use of higher efficiency of fuel cells. In the longer term, after about hydrogen as a transportation fuel is the multiplicity of fuel 2025, hydrogen is assumed to be supplied increasingly from resources and production methods from which hydrogen central coal-based plants with carbon capture and sequestra- can be made, including distributed and central-station steam tion (CCS). As noted in earlier chapters of this report, strong methane reformers (SMRs) used to convert natural gas to policy drivers limiting CO2 emissions will be required to hydrogen, coal gasification, biomass gasification, and elec- implement CCS at central coal plants. To the extent that CCS 

110 TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—A focus on hydrogen technology proves too difficult or too expensive to realize, during technology development and demonstration, through emissions of CO2 would increase relative to the values in approximately 2012, and accelerates significantly only when Figure 6.33 unless other options for low-carbon hydrogen policy options are required to facilitate commercial introduc- production were used. tion of fuel cell vehicles to the market and wider rollout of early hydrogen fuel infrastructure. Indirect costs may accrue as well, such as the loss of Costs and Risks of a Transition to Hydrogen Fuel Cell tax revenue to governments as sales of (presumed) tax-free Vehicles hydrogen substitute for sales of taxed gasoline. A detailed A transition to hydrogen fuel cell vehicles will also have analysis of the impact of such potential indirect costs was substantial costs as well as various potential risks, as dis- beyond the scope of this study. cussed below. Finally, the committee notes that the expenditures (and the use of other key resources such as skilled manpower) made to further a transition to hydrogen fuel cell vehicles also incur Costs real, but somewhat hidden, “opportunity costs”—that is, as As discussed in Chapter 7, sustained expenditures are a result of being spent on the HFCV transition, these funds required for a successful transition to HFCVs, initially in are not available for any other purpose, so other opportuni- support of technology research, development, and demon- ties for the use of the funds are forgone (Economist, 2007). stration (RD&D) programs, and later to support the initial For example, in a narrow sense, a premature and too-specific construction of the hydrogen infrastructure and the intro- focus only on HFCVs might divert resources away from duction of HFCVs into the market. Estimated expenditures other alternatives with potential benefits in terms of reduced for the public investment alone are roughly $55 billion over oil imports and CO2 emissions, such as biofuels, efficiency, the 16 years from 2008 to 2023 for the Hydrogen Success batteries, or hybrids. In a broader sense, HFCV expenditures scenario. simply may be regarded as diverting funds away from any It is important to put this estimate into perspective. First, other program with potential public benefit. An analysis of all U.S. consumers are going to spend more than $7 trillion on potential opportunities for these funds is a matter of public new vehicles and at least $4.5 trillion on fuel over the 16-year policy, however; and thus any detailed analysis of the oppor- period. The large auto manufacturers spent a total of $38 bil- tunity costs associated with this transition is also beyond the lion in 2006 on RD&D (in all areas, not just for hydrogen), scope of this study. and the combined capital budgets of the three largest inte- grated energy companies exceeded $20 billion in the same Risks year. Considering another energy subsidy program, the recently passed U.S. energy bill with ethanol mandates, will The committee has identified three types of potential risks result in more than $160 billion in subsidies to the ethanol associated with the time line and budget roadmap estab- industry over the next 16 years, assuming the subsidies are lished for the transition to HFCVs. All of these would result extended though that time frame. Although the committee in opportunity costs, financial losses, or failure to achieve clearly understands that none of these funding numbers are expected reductions in oil use and/or CO2 emissions if the truly comparable from an investment and risk standpoint, transition is not successful: they do help frame the discussion about the magnitude of the possible hydrogen expenditure levels. 1. Potentially limited market acceptance, Furthermore, since these investments occur over time, 2. Difficulty of achieving simultaneous transitions of some of the risks can be mitigated by periodic assessment vehicles and fuel infrastructure, and of both the progress of various technologies and the current 3. Reliance on geological sequestration to mitigate CO2 environment for development, and subsequent rebalancing of emissions from hydrocarbon-based hydrogen production. the portfolio of programs and development activities based on these assessments. It should be noted that, as shown in Limited Market Acceptance. Although several vehicle Figure 7.3, the rate of public investment remains moderate manufacturers have established detailed demonstration and product development time lines for fuel cell vehicles, includ- ing multiple rounds of prototypes, field tests, and consumer Data assembled by the committee from the websites of the seven acceptance activities, the potential remains for market accep- largest auto companies: GM, Ford, Chrysler, Toyota, Honda, Nissan, and Volkswagen. tance to take longer than, or sales volumes to fall short of, The Energy Security and Independence Act of 2007 increased the re- the committee’s projections. Slow growth might occur owing quired annual volume of renewable fuel to 30 billion gallons by 2020 and to problems in achieving technology goals, issues with fuel 36 billion by 2022. The credit remains the same at $0.51 per gallon. The supply or vehicle resale values, customer perceptions of $160 billion figure was calculated by assuming a reasonable growth curve hydrogen safety, safety concerns expressed in local zoning to meet these production goals with a constant tax credit over the 16 years. No discount rate or adjustment for inflation was applied. 

ADVANTAGES AND DISADVANTAGES OF A TRANSITION TO HYDROGEN VEHICLES 111 codes, or other factors. No matter the root cause, resulting global warming and its possible detrimental effects on public impacts would likely include the following: health; • Potential economic benefits for the United States if • Poor returns on investments, either when development onshore individuals, entrepreneurial companies, or large programs are dragged out too long or sales do not occur in a industrial companies develop and can capture the rents (oper- timely fashion; ating profits, licensing fees, royalties, etc.) from hydrogen • An unnecessary drag on the U.S. economy due to technologies; and underutilized or stranded installed base; and • Specific (although perhaps intangible) benefits for par- • Risk of suboptimal technology choices, if these choices ticular segments of the consumer light-duty vehicle market, were forced before the markets were ready or if a superior such as environmental friendliness or peace of mind about alternative becomes available, such as greatly improved bat- future fuel availability. teries that permit extended-range electric vehicles. None of these other potential benefits were studied by the Difficulty of Achieving Simultaneous Transitions of Vehicles committee, but they could be significant and worthy of and Fuel Infrastructure. Simultaneously carrying out a tran- investigation. Many of these might be realized as well by sition in the fuel infrastructure of light-duty vehicles and a approaches other than hydrogen fuel cell vehicles. transition in the type of light-duty vehicles being driven represents a challenge not faced before by the United States. OTHER potential RISKS Without sales of fuel cell vehicles, fuel providers will be reluctant to invest in fueling capability; without both actual The committee also notes that other indirect risks may and perceived fueling capability (convenient station loca- result from a transition to hydrogen fuel cell vehicles. One tions, fueling speed, and safety), consumers will be reluctant area of potential concern that the committee has indentified to purchase fuel cell vehicles. However, it should be noted is potential price pressure on commodities due to increased that the committee estimates that the infrastructure transi- demand, including but not limited to natural gas, platinum, tion costs will be comparable to other costs that industry and food staples, either via direct competition for food stocks currently manages. as process inputs (e.g., corn for ethanol) or indirect competi- tion for the land, water, and other requirements to produce Risks of Reliance on Carbon Sequestration. If hydrogen food stocks. A detailed analysis of these or any other risks is going to be made from fossil fuels, as the scenarios in requires additional study. Chapter 6 suggest is likely to be the case for several decades beyond the transition, significant amounts of carbon dioxide CONCLUSION captured as part of the hydrogen production process will be emitted to the atmosphere from the production process CONCLUSION: A portfolio of technologies includ- unless it is sequestered. As discussed in Chapter 3, the most ing hydrogen fuel cell vehicles, improved efficiency of promising option for sequestration is to inject captured CO2 conventional vehicles, hybrids, and use of biofuels—in into deep geological formations where it is expected to conjunction with required new policy drivers—has the remain indefinitely. Although there are substantial ongoing potential to nearly eliminate gasoline use in light-duty RD&D efforts on carbon sequestration in the United States, vehicles by the middle of this century, while reducing it remains an unproven technology for the types and scales of fleet greenhouse gas emissions to less than 20 percent of applications envisioned here. Pending a successful outcome current levels. This portfolio approach provides a hedge of ongoing programs to develop and demonstrate the viabil- against potential shortfalls in any one technological ity of CCS, and the development of a regulatory structure approach and improves the probability that the United for such projects, there remain uncertainties and associated States can meet its energy and environmental goals. risks with assuming that this technology will be available Other technologies also may hold promise as part of a and effective when needed. portfolio, but further study is required to assess their potential impacts. OTHER POTENTIAL BENEFITS As discussed above, it is not possible to predict the The committee notes that other benefits may also accrue detailed nature of the transition or even whether better alter- from a successful HFCV transition. These benefits may natives might emerge during the time it takes to accomplish include the following: the transition. It will be important for the federal govern- ment to adopt policy initiatives that are both substantial • Potential benefits for public health—both directly and durable, so that companies—both large and small—can via reductions of local emissions of criteria pollutants from respond to clear market signals. light-duty vehicles and indirectly via potential mitigation of 

112 TRANSITIONS TO ALTERNATIVE TRANSPORTATION TECHNOLOGIES—A focus on hydrogen REFERENCEs Griliches, Z. 1960. Hybrid Corn and the Economics of Innovation. Science 132 (July 29):275-280. DOE-EIA (Department of Energy-Energy Information Agency). 2007. An- Mansfield, E. 1966. Technological Change: Measurement, Determinants, nual Energy Review 2006. Pub. No. DOE/EIA-0384(2006). Available and Diffusion. Report to the President by the National Commission on at http://tonto.eia.doe.gov/ merquery/mer_data.asp?table=T02.05, (ac- Technology, Automation, and Economic Progress, Appendix. Vol. II. cessed November 19, 2007). Washington, D.C. Economist. 2007. Opportunity Cost. The Economist, December; avail- able at http://www.economist.com/research/Economics/alphabetic. cfm?TERM=OECD#opportunitycost. 

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