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Transitions to Alternative Transportation Technologies — A Focus on Hydrogen
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 time line established by the budget roadmap will have specific advantages and disadvantages. This chapter addresses those considerations. Throughout this chapter, it is assumed that the transition follows the maximum practicable scenario identified by the committee and discussed in detail in Chapters 6 and 7: Case 1, Hydrogen Success. The reader should keep in mind that the committee considers that this scenario represents the fastest possible transition to a significant number of hydrogen fuel cell vehicles (HFCVs), and that the numbers and timing discussed in this chapter are not to be viewed as the committee’s projections of what will necessarily happen.
The reader should also keep in mind what this chapter is not. First, this chapter does not address the risks of technical shortfalls or failures themselves. These “technical” risks are addressed via the various cases analyzed and discussed in Chapter 6, especially via Case 1b, Hydrogen Partial Success. Instead this chapter focuses on the broader advantages and disadvantages of the transition, assuming it is accomplished in accordance with the time line and budget roadmap of Case 1.
Second, the reader should note that this chapter also does not present a discussion of alternative technical or public policy approaches to meeting the twin policy goals of reduction of oil imports and of carbon dioxide (CO2) emissions. As with the risks of technical shortfall or failure above, some alternative approaches (efficiency improvements, biofuels) are analyzed in detail and discussed in the various cases presented in Chapter 6, especially Cases 2 and 3. Other alternative approaches have been discussed briefly, without detailed analysis, in various sections throughout this report and recommended for further study if the committee regarded this as appropriate. Again, as above, the reader should keep in mind that this chapter focuses only on the broader advantages and disadvantages of the transition itself, assuming it is accomplished in accordance with the time line and budget roadmap of Case 1.
ANTICIPATED BENEFITS AND COSTS OF THE TRANSITION
As explained in Chapter 2, a successful transition to hydrogen fuel cell vehicles, or a successful transition to any revolutionary new personal transportation system, would be a long-term undertaking facing both significant technical and market risks whose details are impossible to predict. One general statement can be made, however: the anticipated benefits are almost all long term and strategic in nature, while the required investments begin (or continue) immediately and must be sustained for many years before their benefits are manifest. This fact creates a natural tension between short-term costs and long-term benefits that must be addressed if the United States is to make such a transition. Historically, federal funds have been used to lessen or overcome the tensions in dealing with such long-term investments (see, for example, Griliches, 1960; Mansfield, 1966). Chapter 8 of this report discusses some federal government actions that might facilitate the transition to hydrogen fuel cell vehicles.
Most of this chapter relies on the committee’s analysis to identify the advantages or benefits that would result from a successful transition to HFCVs and to set out the costs or disadvantages that could be expected. It also discusses briefly and recommends for further study some broader potential benefits and risks that may be attributable to an HFCV transition, but whose detailed analysis was outside this committee’s scope.
Advantages or Benefits
The primary benefits expected from a successful transition to a hydrogen-based transportation system are captured as two major policy goals that formed the basis for this study:
Reductions in imports of oil and
Lower CO2 and other greenhouse gas emissions.
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The committee also notes that additional benefits may accrue (e.g., public health benefits from reduction in air pollution) from this transition; such other benefits are discussed briefly in this chapter. However, the two primary benefits above, called out in the statement of task, were the focus of the committee’s effort.
Reduced Oil Consumption
It is difficult for the U.S. oil industry to increase domestic oil production due to declining production from existing oil fields, environmentally restricted acreage, and the complexity of new exploration and production projects, especially offshore. Therefore any significant reduction of imports probably would require a concomitant reduction in demand for oil. Reduction of oil imports offers two main benefits to the United States:
Improved energy security, at least to the extent that reduced oil imports are accompanied by the development and adoption of a more diverse set of indigenous energy sources for U.S. transportation, such as coal, nuclear power, biofuels, or other renewable resources; and
Potential for long-term reduction of the outflow of dollars currently required to pay for the nation’s energy needs, especially as indigenous sources of energy are eventually exploited to produce hydrogen. It is also possible that decreased pressure on world oil markets may contribute to a reduction in the price of the oil that must still be imported.
The U.S. transportation sector consumed 28 quadrillion British thermal units (Btu) (28 quads) of energy in 2006, representing 28 percent of total energy consumed. Furthermore, 96 percent of the energy used in the transportation sector was consumed in the form of petroleum products (DOE-EIA, 2007, Tables 2.1a and 2.1e). Furthermore, in 2006, about two-thirds of the crude oil used in the United States was imported (12.3 million barrels per day out of a total of 20.6 million barrels per day, or approximately 60 percent), a proportion that has grown steadily since the early 1980s (DOE-EIA, 2007, Diagram 2 and Figure 5.1).
As shown in Figure 6.32 in Chapter 6, the alternative approaches studied by the committee (internal combustion engine [ICE] improvements and biofuels) offer significant reductions in oil consumption by 2020, but HFCVs are on the path to achieve much more significant savings in the 2035-2050 time frame, at a time when the rate of improvement in oil import reduction due to biofuels and ICE improvements would be slowing.
A further benefit (although not unique) of the use of hydrogen as a transportation fuel is the multiplicity of fuel resources and production methods from which hydrogen can be made, including distributed and central-station steam methane reformers (SMRs) used to convert natural gas to hydrogen, coal gasification, biomass gasification, and electrolysis of water (using grid electricity, renewable energy, or nuclear power; see Table 6.1). Although those fuels and pathways that rely more heavily on indigenous U.S. energy resources (e.g., coal gasification, biomass gasification, and water electrolysis with renewable or nuclear power) today require additional development, all represent alternatives that might be able to mitigate the impact of a significant disruption in the availability of crude oil or natural gas imports.
Reductions in CO2 Emissions
As shown in Figure 6.33, the alternative technologies reviewed by the committee—(1) evolutionary efficiency improvements to vehicles with internal combustion engines and (2) biofuels—have the potential to achieve significant reductions in greenhouse gas emissions by 2020. The former has been incorporated in the reference case until 2020 and could continue to improve efficiency thereafter. However, one can also see in Figure 6.33 that growth in the benefits from these alternative technologies could slow significantly in subsequent years under the scenarios used in this study, while the benefits from adoption of HFCVs, whose numbers begin to be significant in the 2020-2025 time frame, are on a path to increase rapidly throughout 2035-2050 under the maximum practicable scenario. Although it is difficult to predict many years into the future, the sense of the committee is that these trends seem reasonable: the impact of biofuels in the United States is limited by available land and water, and improvements to ICE vehicles are limited by considerations such as cost, how much more efficient engines can be while still meeting durability and environmental requirements, and how much weight can be removed from the vehicle while still meeting consumer preferences. During that same period, the benefits from HFCVs have the potential to continue growing, due both to technology improvements in these relatively new systems and to increasing market penetration. Thus, a transition to HFCVs offers the potential, if successful, to eventually achieve benefits exceeding those of the alternative technologies.
Finally, it should be noted that simply transitioning to hydrogen fuel cell vehicles will not necessarily result in the magnitude of CO2 reductions shown here. Those reductions will depend on the pathways via which hydrogen is produced, as well as on the higher efficiency of HFCVs relative to conventional gasoline engines. As noted in Chapter 6, during the transition period when hydrogen is assumed to be produced via reforming of natural gas, the life-cycle greenhouse gas emissions of HFCVs are still lower than those of conventional vehicles, thanks largely to the much higher efficiency of fuel cells. In the longer term, after about 2025, hydrogen is assumed to be supplied increasingly from central coal-based plants with carbon capture and sequestration (CCS). As noted in earlier chapters of this report, strong policy drivers limiting CO2 emissions will be required to implement CCS at central coal plants. To the extent that CCS
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technology proves too difficult or too expensive to realize, emissions of CO2 would increase relative to the values in Figure 6.33 unless other options for low-carbon hydrogen production were used.
Costs and Risks of a Transition to Hydrogen Fuel Cell Vehicles
A transition to hydrogen fuel cell vehicles will also have substantial costs as well as various potential risks, as discussed below.
Costs
As discussed in Chapter 7, sustained expenditures are required for a successful transition to HFCVs, initially in support of technology research, development, and demonstration (RD&D) programs, and later to support the initial construction of the hydrogen infrastructure and the introduction of HFCVs into the market. Estimated expenditures for the public investment alone are roughly $55 billion over the 16 years from 2008 to 2023 for the Hydrogen Success scenario.
It is important to put this estimate into perspective. First, U.S. consumers are going to spend more than $7 trillion on new vehicles and at least $4.5 trillion on fuel over the 16-year period. The large auto manufacturers spent a total of $38 billion in 2006 on RD&D (in all areas, not just for hydrogen), and the combined capital budgets of the three largest integrated energy companies exceeded $20 billion in the same year.1 Considering another energy subsidy program, the recently passed U.S. energy bill with ethanol mandates, will result in more than $160 billion in subsidies to the ethanol industry over the next 16 years, assuming the subsidies are extended though that time frame.2 Although the committee clearly understands that none of these funding numbers are truly comparable from an investment and risk standpoint, they do help frame the discussion about the magnitude of the possible hydrogen expenditure levels.
Furthermore, since these investments occur over time, some of the risks can be mitigated by periodic assessment of both the progress of various technologies and the current environment for development, and subsequent rebalancing of the portfolio of programs and development activities based on these assessments. It should be noted that, as shown in Figure 7.3, the rate of public investment remains moderate during technology development and demonstration, through approximately 2012, and accelerates significantly only when policy options are required to facilitate commercial introduction 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 tax revenue to governments as sales of (presumed) tax-free hydrogen substitute for sales of taxed gasoline. A detailed analysis of the impact of such potential indirect costs was beyond the scope of this study.
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 real, but somewhat hidden, “opportunity costs”—that is, as a result of being spent on the HFCV transition, these funds are not available for any other purpose, so other opportunities for the use of the funds are forgone (Economist, 2007). For example, in a narrow sense, a premature and too-specific focus only on HFCVs might divert resources away from other alternatives with potential benefits in terms of reduced oil imports and CO2 emissions, such as biofuels, efficiency, batteries, or hybrids. In a broader sense, HFCV expenditures simply may be regarded as diverting funds away from any other program with potential public benefit. An analysis of all potential opportunities for these funds is a matter of public policy, however; and thus any detailed analysis of the opportunity costs associated with this transition is also beyond the scope of this study.
Risks
The committee has identified three types of potential risks associated with the time line and budget roadmap established for the transition to HFCVs. All of these would result in opportunity costs, financial losses, or failure to achieve expected reductions in oil use and/or CO2 emissions if the transition is not successful:
Potentially limited market acceptance,
Difficulty of achieving simultaneous transitions of vehicles and fuel infrastructure, and
Reliance on geological sequestration to mitigate CO2 emissions from hydrocarbon-based hydrogen production.
Limited Market Acceptance. Although several vehicle manufacturers have established detailed demonstration and product development time lines for fuel cell vehicles, including multiple rounds of prototypes, field tests, and consumer acceptance activities, the potential remains for market acceptance to take longer than, or sales volumes to fall short of, the committee’s projections. Slow growth might occur owing to problems in achieving technology goals, issues with fuel supply or vehicle resale values, customer perceptions of hydrogen safety, safety concerns expressed in local zoning
1
Data assembled by the committee from the websites of the seven largest auto companies: GM, Ford, Chrysler, Toyota, Honda, Nissan, and Volkswagen.
2
The Energy Security and Independence Act of 2007 increased the required annual volume of renewable fuel to 30 billion gallons by 2020 and 36 billion by 2022. The credit remains the same at $0.51 per gallon. The $160 billion figure was calculated by assuming a reasonable growth curve to meet these production goals with a constant tax credit over the 16 years. No discount rate or adjustment for inflation was applied.
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codes, or other factors. No matter the root cause, resulting impacts would likely include the following:
Poor returns on investments, either when development programs are dragged out too long or sales do not occur in a timely fashion;
An unnecessary drag on the U.S. economy due to underutilized or stranded installed base; and
Risk of suboptimal technology choices, if these choices were forced before the markets were ready or if a superior alternative becomes available, such as greatly improved batteries that permit extended-range electric vehicles.
Difficulty of Achieving Simultaneous Transitions of Vehicles and Fuel Infrastructure. Simultaneously carrying out a transition in the fuel infrastructure of light-duty vehicles and a transition in the type of light-duty vehicles being driven represents a challenge not faced before by the United States. Without sales of fuel cell vehicles, fuel providers will be reluctant to invest in fueling capability; without both actual and perceived fueling capability (convenient station locations, fueling speed, and safety), consumers will be reluctant to purchase fuel cell vehicles. However, it should be noted that the committee estimates that the infrastructure transition costs will be comparable to other costs that industry currently manages.
Risks of Reliance on Carbon Sequestration. If hydrogen is going to be made from fossil fuels, as the scenarios in Chapter 6 suggest is likely to be the case for several decades beyond the transition, significant amounts of carbon dioxide captured as part of the hydrogen production process will be emitted to the atmosphere from the production process unless it is sequestered. As discussed in Chapter 3, the most promising option for sequestration is to inject captured CO2 into deep geological formations where it is expected to remain indefinitely. Although there are substantial ongoing RD&D efforts on carbon sequestration in the United States, it remains an unproven technology for the types and scales of applications envisioned here. Pending a successful outcome of ongoing programs to develop and demonstrate the viability of CCS, and the development of a regulatory structure for such projects, there remain uncertainties and associated risks with assuming that this technology will be available and effective when needed.
OTHER POTENTIAL BENEFITS
The committee notes that other benefits may also accrue from a successful HFCV transition. These benefits may include the following:
Potential benefits for public health—both directly via reductions of local emissions of criteria pollutants from light-duty vehicles and indirectly via potential mitigation of global warming and its possible detrimental effects on public health;
Potential economic benefits for the United States if onshore individuals, entrepreneurial companies, or large industrial companies develop and can capture the rents (operating profits, licensing fees, royalties, etc.) from hydrogen technologies; and
Specific (although perhaps intangible) benefits for particular segments of the consumer light-duty vehicle market, such as environmental friendliness or peace of mind about future fuel availability.
None of these other potential benefits were studied by the committee, but they could be significant and worthy of investigation. Many of these might be realized as well by approaches other than hydrogen fuel cell vehicles.
OTHER POTENTIAL RISKS
The committee also notes that other indirect risks may result from a transition to hydrogen fuel cell vehicles. One area of potential concern that the committee has indentified is potential price pressure on commodities due to increased demand, including but not limited to natural gas, platinum, and food staples, either via direct competition for food stocks as process inputs (e.g., corn for ethanol) or indirect competition for the land, water, and other requirements to produce food stocks. A detailed analysis of these or any other risks requires additional study.
CONCLUSION
CONCLUSION: A portfolio of technologies including hydrogen fuel cell vehicles, improved efficiency of conventional vehicles, hybrids, and use of biofuels—in conjunction with required new policy drivers—has the potential to nearly eliminate gasoline use in light-duty vehicles by the middle of this century, while reducing fleet greenhouse gas emissions to less than 20 percent of current levels. This portfolio approach provides a hedge against potential shortfalls in any one technological approach and improves the probability that the United States can meet its energy and environmental goals. Other technologies also may hold promise as part of a portfolio, but further study is required to assess their potential impacts.
As discussed above, it is not possible to predict the detailed nature of the transition or even whether better alternatives might emerge during the time it takes to accomplish the transition. It will be important for the federal government to adopt policy initiatives that are both substantial and durable, so that companies—both large and small—can respond to clear market signals.
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REFERENCES
DOE-EIA (Department of Energy-Energy Information Agency). 2007. Annual Energy Review 2006. Pub. No. DOE/EIA-0384(2006). Available at http://tonto.eia.doe.gov/ merquery/mer_data.asp?table=T02.05, (accessed November 19, 2007).
Economist. 2007. Opportunity Cost. The Economist, December; available at http://www.economist.com/research/Economics/alphabetic.cfm?TERM=OECD#opportunitycost.
Griliches, Z. 1960. Hybrid Corn and the Economics of Innovation. Science 132 (July 29):275-280.
Mansfield, E. 1966. Technological Change: Measurement, Determinants, and Diffusion. Report to the President by the National Commission on Technology, Automation, and Economic Progress, Appendix. Vol. II. Washington, D.C.
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Appendixes
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