Imagine a world in which you can drive your car to work each day without consuming any oil or producing any pollution. When you park your car at work or at home, you hook it up to the power grid, generating pollution-free electricity for your community. And, as part of the deal, you get money back from your utility.
You are living in the hydrogen economy, a high-tech Eden. Is it too good to be true? Will it happen in your lifetime?
The environmental paradise of a hydrogen economy rests on two pillars: a pollution-free source for the hydrogen itself and a device for converting it into useful energy without generating pollution. Let’s start with the fuel cell—a small, modular electrochemical device, similar to a battery, but which can be continuously fueled. For most purposes, think of a fuel cell as a black box that takes in hydrogen and oxygen and puts out water plus electricity and heat, but no pollution whatsoever.
The first commercial stationary fuel cell was introduced in the early 1990s by United Technologies Corporation. Since fuel cells have no moving parts, they hold the promise of high reliability, and since power outages had caused countless business disruptions in the late 1990s, the product seemed like a sure winner.
These fuel cells were first used to provide guaranteed ultra-reliable power in the Technology Center of the First National Bank of Omaha. The center processes credit card orders from all over the country. "A single major retail client can lose as much as $6 million an hour if the Center’s power fails and orders are not processed," reported Thomas Ditoro, the project’s electrical engineer. In the bank’s previous facility, its customers had experienced substantial losses from a power outage and failure of a battery backup system. That is why the First National Bank installed the most reliable electric power source it could find, a system developed by SurePower Corporation combining fuel cells with other advanced energy and electronic devices.1
The bank needed to maximize the availability of its computer system to protect existing clients while attracting new ones. A traditional system, combining an uninterruptible power supply (UPS) with power from the electric grid and backup diesel generators, would have more than a 63 percent probability of a major failure over its 20-year life. The SurePower system has less than a 1 percent chance of a major failure in 20 years. This may well be the difference between business success or bankruptcy.
After the system was installed in mid-1999, the bank used its new ultra-reliable power as a key feature in its marketing campaign, and as a result it has increased its market share. Dennis Hughes, the bank’s lead property manager, said that the system’s high reliability "isn’t a luxury for us" but rather is a "competitive advantage. With SurePower, First National can raise our customers’ service expectations while generating higher revenues." Although the initial cost of the fuel cell system was higher than that of the traditional ups system, the life-cycle costs were much lower—a winning choice in every way.2
I started working with SurePower during this project and performed an environmental analysis of the system. I found many benefits other than high reliability and low life-cycle cost. Compared with a traditional system using a ups and the electric grid, the SurePower system had a superior environmental performance. It had more than 40 percent lower emissions of carbon dioxide (CO2, the primary greenhouse gas) and less than one one-thousandth the emissions of other air pollutants. Intrigued, I became an investor in the company, and later I helped it make an advance sale of the greenhouse gas credits that would be created by its next pollutionreducing project.
And yet for more than four years after its highly successful First National Bank of Omaha project, SurePower still was not able to sell a second high-reliability system to any other customer. Moreover, the manufacturer of the fuel cells themselves, UTC Fuel Cells, had only limited success selling the product for other applications and is phasing them out to pursue a different fuel cell technology. Exploring the complicated reasons for this unexpected business outcome (see Chapters 2 and 3) will help explain the challenges to, as well as the benefits of, accelerating the commercialization of stationary fuel cells.
Assuming we succeed with fuel cells, we must still find affordable, pollution-free sources for hydrogen to achieve a true hydrogen economy. We are a long way from finding them. The person credited with originating the phrase "hydrogen economy" in the early 1970s, Australian electrochemist John Bockris, wrote in 2002, "Boiled down to its minimalist description, the ‘Hydrogen Economy’ means that hydrogen would be used to transport energy from renewables (at nuclear or solar sources) over large distances; and to store it (for supply to cities) in large amounts."3 Our cars, our homes, our industries would be powered not by pollution-generating fossil fuels—coal, gas, and oil, much of which is imported from geopolitically unstable regions—but by hydrogen from pollution-free domestic sources.
Unfortunately, the costs of producing hydrogen from renewable energy sources are extraordinarily high and likely to remain so for decades, given current U.S. energy policies. Virtually all hydrogen today is produced from fossil fuels in processes that generate significant quantities of greenhouse gases. Although a number of people have characterized the hydrogen economy as being just around the corner, what they are actually promoting is an economy built around hydrogen made from natural gas and other polluting fossil fuels.
Running stationary fuel cells on hydrogen produced from natural gas makes a great deal of sense and seems likely in the near future (see Chapters 2 and 3). But a transportation system based on hydrogen will be much slower in coming and more difficult to achieve than is widely appreciated. The technological challenges are immense. More important, fueling cars with hydrogen made from natural gas makes no sense, either economically or environmentally (see Chapters 6 and 8). The rapidly growing threat of global warming demands that hydrogen for cars be produced from sources that do not generate greenhouse gases.
Energy and Climate
Our energy choices are inextricably tied to the fate of our global climate. The burning of fossil fuels emits co2 into the atmosphere, where it builds up, blankets the planet, and traps heat, accelerating global warming (see Chapter 7). Earth’s atmosphere now contains more co2 than at any time in the past 420,000 years—leading to rising global temperatures, more extreme weather events (including floods and droughts), sea level rise, the spread of tropical diseases, and the destruction of crucial habitats such as coral reefs.
The world’s energy system is sometimes compared to an aircraft carrier to describe how hard it will be to change its direction. A more apt analogy is a coal-powered locomotive—and we need a new engine, new fuel, and even new tracks. The first problem is that carbon-emitting products and facilities have a very long lifetime: Cars last 13 to 15 years or more; coal plants can last 50 years. The second problem is that, once emitted, co2 lingers in the atmosphere, trapping heat for more than a century. These two facts together make it urgent that we avoid constructing another massive and long-lived generation of energy infrastructure that will cause us to miss the window of opportunity for carbon-free energy until the twenty-second century.
The International Energy Agency (IEA) projects that coal generation will double between 2000 and 2030. The projected new plants would commit the planet to total co2 emissions of some 500 billion metric tons over their lifetime. This "amounts to half the estimated total cumulative carbon emissions from all fossil fuel used globally over the past 250 years!" observed David Hawkins, director of the Natural Resources Defense Council’s Climate Center, in testimony to the United States Congress in June 2003.4
The scientific community is increasingly speaking with one voice to warn us that, on such a path, even the best-case scenario for climate change is grim. A plausible worst-case scenario is an irreversible catastrophe. We are in the doubly dangerous situation of facing global climate change that may be much more extreme and may occur much more quickly than was expected just a few years ago (see Chapter 7). As the National Academy of Sciences explained in 2002, "the new paradigm of an abruptly changing climatic system has been well established by research over the last decade, but this new thinking is little-known and scarcely appreciated in the wider community of natural and social scientists and policy-makers."5
The path set by the current energy policy of the United States and the developing world will dramatically increase greenhouse gas emissions over the next few decades, which will force sharper and more painful reductions in the future when we finally do act. In the United States, the transportation sector alone is projected to generate nearly half of the 40 percent rise in co2 emissions forecast for 2025, which is long before hydrogen-powered cars could have a positive effect on greenhouse gas emissions (see Chapter 8).
Our current policy ignores clean energy technologies available today. Worse, our status quo energy policy works only if new technologies under development today become competitive in the marketplace quickly and if global warming is mild compared with most leading projections. Neither is likely to be the case. Thus, the path we are on is fraught with unnecessary risks.
A Realistic View
Many clean energy companies were overhyped in the late 1990s, in part because of a strange myth that, because the Internet and related information technology equipment supposedly consumed a great deal of electricity, the rapid growth in the Internet would lead to rapid growth in electricity demand. This, it was argued, would benefit all technologies that provide electricity but especially those that could provide reliable power, such as fuel cells. Several major brokerage firms released their own "analyses" repeating this myth and touting a variety of energy technology stocks. The myth was utterly refuted by the Lawrence Berkeley National Laboratory, the Rand Corporation, and my own Center for Energy and Climate Solutions, among others: The Internet is not, in fact, a big electricity draw, and its growth has little, if any, effect on overall growth in electricity demand (see Chapter 3).
The near-term prospects for fuel cell vehicles were also overhyped in the late 1990s. In November 2002, a major study titled "Hybrid & Competitive Automobile Powerplants" concluded, "The industry is currently experiencing a backlash to the ‘just around the corner’ hype that has surrounded the automotive fuel cell in recent years."6
Not surprisingly, from fuel cells to microturbines, many stocks that soared in the NASDAQ boom plummeted in the bust. For instance, the company that assumed a leadership role in transportation fuel cells in the 1980s and 1990s, the company with the most patents and the most major deals with automakers, is Ballard Power Systems Inc. This Canadian company was even the subject of a very favorable 1999 book, Powering the Future, in which executives were quoted as assuring profitability within a year or two. The stock price soared in the late 1990s. By December 2002, the price had dropped back to 1997 levels. The company announced that it was laying off 400 people, one-quarter of the workforce, and did not expect to achieve profitability for five years.7 And yet Ballard remains one of the leaders in fuel cells. Commercializing new energy technologies is much harder than is widely realized—a key theme of this book.
For a number of years, I have divided my time between working with small companies trying to market the next breakthrough technology and helping Fortune 500 companies design strategies to cut energy costs and reduce greenhouse gas emissions. This work, together with my earlier time at the U.S. Department of Energy (see Chapter 1), has taught me two large lessons about the marketplace.
First, most companies are very conservative about purchasing and deploying new technology. A small number of firms are aggressive first adopters, but the vast majority buy only products that have both a good commercial track record and a very rapid payback. Even many brand-named companies will invest only in an energy technology that pays for itself in energy savings within about a year.
Second, those in the public or private sector who advocate new technologies tend to overestimate how rapidly they will achieve their performance and cost goals while underestimating what the competition will do. Renewable energy still suffers from the marketplace perception that it has failed to deliver on promises made in the 1970s, although for more than a decade now both solar power and wind power have been growing rapidly, and most renewable energy technologies have met or exceeded their cost and performance goals. Nonetheless, renewable energy does not now provide a bigger share of U.S. energy mainly because the competition got tougher. Fossil fuel technologies in particular now have both reduced costs and reduced pollution (see Chapter 8).
Hydrogen faces a similar set of obstacles. Yet numerous studies of a hydrogen economy rely on assumptions that are overly optimistic. For instance, many analyses assume that the total delivered cost for hydrogen need be reduced only to a level at which it is twice that of gasoline (for an equivalent amount of energy delivered). The argument is made that hydrogen fuel cells are twice as efficient as gasoline internal combustion engines, so the fuel can be twice as expensive and consumers will still end up paying the same total fuel bill. But that is comparing a future technology with a current technology —and not even the best current technology. Hybrid gasoline-electric vehicles today, such as the Toyota Prius, are already much more efficient than traditional internal combustion engine vehicles and nearly as efficient as projected fuel cell vehicles (assuming fuel cells achieve their performance targets). A hybrid dieselelectric vehicle would have about the same overall efficiency as a fuel cell vehicle. That’s tough competition for hydrogen.
Given the numerous large roadblocks that hydrogen fuel cell vehicles must overcome to become competitive products, and given the history of other advanced energy technologies, we should avoid both overoptimistic assumptions about new technologies and underestimation of the competition. Indeed, considering the tens of billions of dollars for infrastructure that the government (and hence U.S. taxpayers) will have to devote to bring about a hydrogen economy, conservative assumptions are essential. The energy and environmental problems facing the nation and the world, especially global warming, are far too serious to risk making major policy mistakes that misallocate scarce resources.
In this book, my aim is to be realistic, using analysis that is neither overly optimistic nor overly pessimistic. In almost every case in which I cite a cost or make a simple calculation, there will be other ways to do the analysis based on different assumptions, projections of future technological breakthroughs, or estimates of how mass production of existing technology could dramatically cut costs. I am very hopeful that the sunnier predictions will ultimately prove true, but our limited experience with commercializing fuel cells provides a multi-decade lesson in high-tech humility. And our recent experience in trying to accelerate the introduction of alternative fuel vehicles provides a lesson in how difficult it will be to rapidly change gasoline-powered cars and the gasoline infrastructure (see Chapters 5 and 6). One hard lesson learned is that overhyping new technologies ultimately ends up slowing their success in the market.
Unfortunately, the usual sources for good information have often been unreliable, a testimony to the enormous difficulty of analyzing the many factors involved in the transition to a pollution-free hydrogen economy. Most of the articles and books on the subject in recent years—including articles in such prestigious publications as Technology Review, Wired magazine, and the Atlantic Monthly—fail to distinguish between likely scenarios for the future and unlikely ones. They often contain serious errors and misleading statements.
Just as importantly, major corporations such as General Motors continue to overhype the near-term prospect for hydrogen cars. GM is wildly overestimating the speed of successful mass-market introduction of hydrogen cars, which it says will start around 2010, while underestimating the competition from hybrids. GM is spending a large fraction of its research budget on hydrogen-powered cars—which the analysis in this book suggests is a strategic mistake.8
My goal here is threefold: to lay out the key issues in the transition to a hydrogen economy, to sort out the plausible scenarios from the less plausible ones, and to explain how current policies could delay that transition 10 to 20 years or more. Since no single person can be an expert in all relevant areas, I have sought out a spectrum of views from dozens of scientists, engineers, government officials, entrepreneurs, environmentalists, and policy analysts.
This book makes the case that hydrogen vehicles are unlikely to achieve even a 5 percent market penetration by 2030. And this in turn leads to the book’s major conclusion for all readers, from policymakers to corporate executives to investors to anyone who cares about the future of the planet: Neither government policy nor business investment should be based on the belief that hydrogen cars will have meaningful commercial success in the near- or medium-term.