How Hydrogen Can Save America

The cost of oil dependence has never been so clear. What had long been largely an environmental issue has suddenly become a deadly serious strategic concern. Oil is an indulgence we can no longer afford, not just because it will run out or turn the planet into a sauna, but because it inexorably leads to global conflict. Enough. What we need is a massive, Apollo-scale effort to unlock the potential of hydrogen, a virtually unlimited source of power. The technology is at a tipping point. Terrorism provides political urgency. Consumers are ready for an alternative. From Detroit to Dallas, even the oil establishment is primed for change. We put a man on the moon in a decade; we can achieve energy independence just as fast. Here's how.

By Peter Schwartz and Doug Randall

Four decades ago, the United States faced a creeping menace to national security. The Soviet Union had lobbed the first satellite into space in 1957. Then, on April 12, 1961, Russian cosmonaut Yuri Gagarin blasted off in Vostok 1 and became the first human in orbit.

President Kennedy understood that dominating space could mean the difference between a country able to defend itself and one at the mercy of its rivals. In a May 1961 address to Congress, he unveiled Apollo - a 10-year program of federal subsidies aimed at "landing a man on the moon and returning him safely to the Earth." The president announced the goal, Congress appropriated the funds, scientists and engineers put their noses to the launchpad, and - lo and behold - Neil Armstrong stepped on the lunar surface eight years later.

The country now faces a similarly dire threat: reliance on foreign oil. Just as President Kennedy responded to Soviet space superiority with a bold commitment, President Bush must respond to the clout of foreign oil by making energy independence a national priority. The president acknowledged as much by touting hydrogen fuel cells in January's State of the Union address. But the $1.2 billion he proposed is a pittance compared to what's needed. Only an Apollo-style effort to replace hydrocarbons with hydrogen can liberate the US to act as a world leader rather than a slave to its appetite for petroleum.

Tronic Studio Money can do more than ease the pain of lost income. It can turn oil companies into the hydrogen economy's standard bearers.

Once upon a time, America's oil addiction was primarily an environmental issue. Hydrocarbons are dirty - befouling the air and water, possibly shifting the climate, and causing losses of biodiversity and precious coastal real estate. In those terms, the argument is largely political, one of environmental cleanliness against economic godliness. The horror of 9/11 changed that forever. Buried in the rubble of the World Trade Center was the myth that America can afford the dire costs of international oil politics. The price of the nation's reliance on crude has included '70s-style economic shocks, Desert Storm-like military adventures, strained relationships with less energy-hungry allies, and now terror on our shores.

George W. Bush arrived in Washington, DC, as a Texan with deep roots in the oil business. In the days following September 11, however, he transformed himself into the National Security President. Today, his ambition to protect the United States from emerging threats overshadows his industry ties. By throwing his power behind hydrogen, Bush would be gambling that, rather than harming Big Oil, he could revitalize the moribund industry. At the same time, he might win support among environmentalists, a group that has felt abandoned by this White House.

According to conventional wisdom, there are two ways for the US to reduce dependence on foreign oil: increase domestic production or decrease demand. Either way, though, the country would remain hostage to overseas producers. Consider the administration's ill-fated plan to drill in the Arctic National Wildlife Refuge. For all the political wrangling and backlash, that area's productivity isn't likely to offset declining output from larger US oil fields, let alone increase the total supply from domestic sources. As for reducing demand, the levers available are small and ineffectual. The average car on the road is nine years old, so even dramatic increases in fuel efficiency today won't head off dire consequences tomorrow. Moreover, the dynamism at the heart of the US economy depends on energy. Growth and consumption are inextricably intertwined.

There's only one way to insulate the US from the corrosive power of oil, and that's to develop an alternative energy resource that's readily available domestically. Looking at the options - coal, natural gas, wind, water, solar, and nuclear - there's only one thing that can provide a wholesale substitute for foreign oil within a decade: hydrogen. Hydrogen stores energy more effectively than current batteries, burns twice as efficiently in a fuel cell as gasoline does in an internal combustion engine (more than making up for the energy required to produce it), and leaves only water behind. It's plentiful, clean, and - critically - capable of powering cars. Like manned space flight in 1961, hydrogen power is proven but primitive, a technology ripe for acceleration and then deployment. (For that, thank the Apollo program itself, which spurred the development of early fuel cells.)

Many observers view as inevitable the transition from an economy powered by fossil fuels to one based on hydrogen. But that view presupposes market forces that are only beginning to stir. Today, power from a fuel cell car engine costs 100 times more than power from its internal combustion counterpart; it'll take a lot of R&D to reduce that ratio. More daunting, the notion of fuel cell cars raises a chicken-and-egg question: How will a nationwide fueling infrastructure materialize to serve a fleet of vehicles that doesn't yet exist and will take decades to reach critical mass? Even hydrogen's boosters look forward to widespread adoption no sooner than 30 to 50 years from now. That's three to five times too long.

Adopting Kennedy's 10-year time frame may sound absurdly optimistic, but it's exactly the kick in the pants needed to jolt the US out of its crippling complacency when it comes to energy. A decade is long enough to make a serious difference but short enough that most Americans will see results within their lifetimes. The good news is that the technical challenges are issues of engineering rather than science. That means money can solve them.

How much money? How about the amount spent to put a man on the moon: $100 billion in today's dollars. With that investment, the nation could shift the balance of power from foreign oil producers to US energy consumers within a decade. By 2013, a third of all new cars sold could be hydrogen-powered, 15 percent of the nation's gas stations could pump hydrogen, and the US could get more than half its energy from domestic sources, putting independence within reach. All that's missing is a national commitment to make it happen.

It'd be easy - too easy - to misspend $100 billion. So the White House needs a plan. The strategy must take advantage of existing infrastructure and strengthen forces propelling the nation toward hydrogen while simultaneously removing obstacles. There are five objectives:

1. Solve the hydrogen fuel-tank problem.

2. Encourage mass production of fuel cell vehicles.

3. Convert the nation's fueling infrastructure to hydrogen.

4. Ramp up hydrogen production.

5. Mount a public campaign to sell the hydrogen economy.

By pursuing all five at once, the government can create a self-sustaining cycle of supply and demand that gains momentum over the coming decade and supplants the existing energy market in the decades that follow. Rather than waiting to build a hydrogen infrastructure from scratch, the US can start building the new fuel economy immediately by piggybacking on existing petroleum-based industries. Once customers are demanding and producers are supplying, there will be time to create a cleaner, more efficient hydrogen-centric infrastructure that runs on market forces alone.

1. Solve the hydrogen fuel-tank problem
The fuel cell, essentially a battery with a replaceable energy storage medium, isn't new. The basic ideas were in place by the mid-1800s, and the first proton-exchange membrane fuel cell - the type most practical for use in automobiles - was built by General Electric in the early '60s. Unlike a combustion engine, in which exploding gas pushes pistons, a fuel cell engine strips electrons from hydrogen and uses the resulting electrical current to power a motor. Then it combines the remaining hydrogen ions (protons) with oxygen to form water, the only byproduct. (A hybrid electrical engine is something else: a gasoline engine that powers a battery.)

In 1993, Canadian fuel cell manufacturer Ballard Power Systems began using the technology in buses, which could accommodate huge first-generation hydrogen engines and fuel tanks. The engines have since become smaller, but carrying enough hydrogen for 400 miles of driving - the range consumers generally expect - remains a challenge.

The Bush administration should spend $15 billion to solve this problem. The main question is whether to carry the fuel in gas, liquid, or solid form, each of which offers its own advantages and disadvantages. Until the industry settles on a standard, the market won't support mass production or ubiquitous filling stations.

The simplest option is gaseous hydrogen. The problem: It takes up a lot of room, so the gas must be compressed, but this requires a tank capable of withstanding high pressure. To carry enough fuel for 400 miles of travel, the tank would need to withstand 10,000 pounds per square inch - 50 times the pressure in a combustion engine's cylinders - and to keep it from bursting in an impact, it would need to tolerate 20,000 pounds per square inch. More research is needed to find materials strong enough to do the job yet light enough to carry and cheap enough to mass-produce.

Liquid hydrogen also has pros and cons. It exerts far less pressure on the tank, but it must be cooled to -423 degrees Fahrenheit at the pump and kept that way in the vehicle. This refrigeration demands a significant amount of energy, and insulating the tank can multiply its size. What's more, even with the best insulation, as much as 4 percent of the liquid evaporates daily, creating pressure that can only be relieved by bleeding off the vapor. As a result, a car left at the airport for two weeks would lose half its fuel. Scientists need to find a way to eliminate or utilize this boil-off.

In the long run, the most promising approach is to fill the tank with a solid material that soaks up hydrogen like a sponge at fill-up and releases it during drive time. Currently, the options include lithium hydride, sodium borohydride, and an emerging class of ultraporous nanotech materials. Unlike gaseous hydrogen, these substances can pack a lot of power into a small space of arbitrary shape. And unlike liquid hydrogen, they can be kept at room temperature. On the other hand, energy is required to infuse the solid medium with hydrogen, and in some cases very high temperatures are required to get the fuel back out, exacting a huge toll in efficiency. Also, filling the tank can take far more time than pumping gasoline. Government money could bridge the gap between today's experiments and a viable solution.

2. Encourage mass production of fuel cell vehicles
Once the storage problem has been solved, carmakers should be encouraged to gear up for mass production of fuel cell vehicles.

Detroit is already moving in that direction. To date, DaimlerChrysler, Ford, and General Motors have spent roughly $2 billion developing fuel cell cars, buses, and trucks, with the first products due to hit the market this year. Ford chair William Clay Ford Jr. has proclaimed that fuel cells will "finally end the 100-year reign of the internal combustion engine."

To make sure the transition doesn't take another century, though, the Bush administration should allocate $10 billion to help automakers manufacture fuel cells efficiently and cheaply, either on their own (like GM) or through contracts with government-approved fuel cell developers. Funding should be contingent on the companies adhering to a strict schedule for bringing hydrogen-based vehicles to market (coordinated, of course, with the schedule for bringing fueling stations online).

A mandatory portion should be set aside for marketing. Detroit will face a tremendous hurdle of consumer acceptance, and it should take full advantage of Madison Avenue's skills to convince the public that fuel cell cars aren't just viable, but desirable. This isn't a fantasy. Toyota's Prius, the first mass-produced gasoline/electric hybrid car, has sold more than 100,000 units since its 1997 debut, proving that the public will embrace a radically different automobile.

3. Convert the fueling infrastructure to hydrogen
Of course, no one will drive a hydrogen-powered car off the lot unless they're confident they'll be able to get fuel when and where they need it. That's why the Bush administration must focus on infrastructure as well as vehicles.

Like the car companies, oil producers have already taken steps toward an oil-free future. Over the past 15 years, corporations like Shell and Exxon have ceded their leadership in oil production to a dozen state-owned enterprises in countries such as Venezuela, Brazil, and Norway. Instead they've focused on adding value farther down the supply chain by refining crude into gasoline and distributing and selling it through filling stations. They know they could play the same role in a hydrogen economy, which is why Shell and BP have invested hundreds of millions of dollars in hydrogen storage and production technology. Indeed, BP, formerly British Petroleum, has rebranded itself Beyond Petroleum

The major oil companies are already extracting hydrogen from gasoline for industrial uses at nine refinery complexes throughout the United States. With a little push, these plants could serve as hubs for a nascent hydrogen-distribution network.

Converting filling stations is bound to cost billions of dollars over several decades. But it should cost relatively little to retrofit clusters of stations in proximity to both a hydrogen-producing refinery and a population center where fuel cell vehicles are sold. Oil companies could meet initial demand by trucking hydrogen from refineries to these stations. As the number of fuel cell vehicles on the road rises, stations that aren't served by refinery hubs could install processors, called reformers, that use electricity to extract hydrogen from gasoline or water. The White House should ask for $5 billion - roughly $30,000 for each of the nation's 176,000 filling stations - to get the ball rolling.

In the long run, a pipeline piggybacking on existing natural gas pipelines might deliver most of the fuel, either from high-volume plants or more widely distributed facilities. The administration should set aside $10 billion for incentives like interest-free loans to encourage oil companies to construct a national hydrogen pipeline. It might also grant five-to-ten-year monopoly rights to pipeline builders.

Hydrogen's fuel-efficiency offers immediate benefits to transportation companies that maintain their own vehicles and use them for limited, predictable distances. In fact, FedEx and UPS plan to phase in fuel-cell trucks over the next five years. The Bush administration should take advantage of this synergy between early adopters and the national interest by offering $10 billion in tax breaks to companies that invest in hydrogen-powered fleets. Also, in regions served by a refinery hub, $5 billion should be allocated for fuel cell police cars, ambulances, maintenance trucks, and other municipal vehicles. The military is another sensible target, since 60 percent of its logistics budget is devoted to transporting gasoline.

The critical need to build infrastructure along with vehicles brings to mind an earlier Apollo-like initiative: Eisenhower's National Defense Highway Act. As an officer during World War II, Ike struggled to move troops across the US and saw how Germany's highways conferred a military advantage. Once in the Oval Office, he called for $300 billion in today's dollars to build an interstate highway system. Funded by a gas tax, that program's dramatic success proved that national security can motivate federal infrastructure projects on a grand scale.

4. Ramp up hydrogen production
But where will the hydrogen come from? Ironically, while hydrogen is the most plentiful element in the universe, it rarely appears in its pure form. It must be extracted from substances that contain it, like fossil fuels and water. The problem is that the extraction itself requires power. Currently, the least expensive method is a process known as steam reforming, in which natural gas reacts chemically with steam to produce hydrogen and carbon dioxide, a greenhouse gas. Far preferable would be to use carbon-free resources like solar, wind, and hydropower to produce electricity for electrolysis, which splits water into hydrogen and oxygen. Hydrogen would make renewable energy practical, acting as a storage medium for the modest amounts of energy such resources produce. Wind power, especially, lends itself to this sort of use. This and other renewables should receive $10 billion as a seed for long-term development.

This suggests a role for a clean, efficient, and much neglected energy source: nuclear. Like the fuel cell, the nuclear generator is a technology ripe for exploitation. Unlike the solid-core reactors of the past, pebble-bed modular reactors such as the one at Koeberg, South Africa, don't get hot enough to risk melting down. Koeberg uses small graphite-covered uranium balls rather than plutonium rods, and the reactor's cooled by helium rather than water. This new design is so efficient, it might make nuclear competitive with coal and oil. In any event, the nuclear power industry is in dire need of research for everything, from generation to waste treatment. Thus, $10 billion should be allocated to developing and securing nuclear technology that can power the hydrogen revolution.

Nuclear power will serve as a stopgap, enabling the US to achieve energy independence while allowing wind, solar, and hydropower a chance to mature. Given the choice between powering the carbon-free hydrogen economy with fossil fuels or nuclear energy, even Greenpeace might embrace nuke plants as the lesser evil.

As all the various subsidies kindle a self-sustaining economy, they should be tapered and the money shunted to the other major power in the conversion from oil to hydrogen: electric utilities. Within a decade, outlays to power companies should be aimed at connecting hydrogen pipelines to the power stations.

5. Mount a Public Campaign To Sell the Hydrogen Economy
With a growing federal deficit and a stagnant economy, this might seem like a singularly bad time to unleash an immense tide of new subsidies. And let's be honest: Even framed as a national security issue, a $100 billion proposal won't go down easily on Capitol Hill or in Peoria. This is why the Bush administration's campaign to sell the hydrogen economy must be even more vigorous than its campaign to sell the war against Iraq.

Financially, the case is compelling. One hundred billion dollars is less than a quarter of what the federal government plans to spend annually on defense within five years. A 5 cent per gallon increase in the gasoline tax - less than the seasonal variation in gasoline prices - would pay for part of it. For the rest, the government could issue "H Bonds." Like Liberty Bonds during World Wars I and II, "securities for security" would give citizens a way to take part in the cause while providing an attractive investment. Like war bonds, they could be promoted by celebrities, sold by Boy and Girl Scouts, and paid for via payroll deduction plans.

Convincing Congress will take all the finesse the administration can muster, but some states are already pushing the hydrogen agenda with tax credits, research funding, and other policies to create jobs in fuel cell manufacture. "We want to collaborate with the federal government and industry to make California a leader in hydrogen," says Alan Lloyd, chair of California's Air Resources Board, an EPA suboffice in a state where SUVs sport SAVE THE EARTH bumper stickers. (The city of Los Angeles bought its first fuel-cell vehicle from Honda last December.) States that foster hydrogen technology companies will be rewarded with tax revenue from sales to Europe and Asia, which are also looking into it.

Even before he sells the plan to Congress, the president will have to sell it to the oil and auto industries. After all, hydrogen power is a potent threat to their current business, and they own the fueling infrastructure and manufacturing capacity necessary to bring that power to market. The prospect of massive subsidies will help; these industries are squeezed between shrinking profits and rising costs. But the money can do more than relieve their pain. It can set them on a sustainable course for the future, turning the biggest obstacles to the hydrogen economy into its standard bearers.

Petroleum suppliers and auto manufacturers alike understand the need to disentangle their business models from crude. By most estimates, the worldwide oil supply has nearly stopped growing. Thanks to new discoveries, the total reserve increased by 56 percent between 1980 and 1990 but only 1.4 percent between 1990 and 2000. Pessimistic geologists argue that production will begin to decline as early as 2006, while optimists point at 2040. What's more, it's now clear that oil consumption is at least partly to blame for global warming, prompting ever-louder calls for alternatives. It shouldn't take much persuasion to convince the oil and car industries that the most profitable course is to adapt to hydrogen sooner with government money rather than later without.

The most important market over the next decade, of course, is the US consumer. The administration should allocate $25 billion to persuade Americans to buy fuel cell cars and invest in hydrogen technology. This budget would pay for a $2,000 tax rebate on vehicle purchases, and fund local incentives such as preferential parking, freeway lanes, and free registration for fuel cell cars. At least $1 billion a year - equal to Nike's 2001 advertising budget - should be devoted to public-service announcements, posters, lectures, contests, and other ways of sending the message that achieving energy independence through hydrogen is a patriotic duty.

There are good reasons to wonder whether any government initiative, even one that's critical to national security, can bring about such a radical change. Federal energy programs don't have much of a track record, and past efforts to promote hydrogen itself - after the oil crises of 1973, 1978, and 1980, for instance - have failed to take root.

These attempts foundered mainly because the US continued to have access to cheap oil. Energy independence briefly became top priority after OPEC raised prices from $3 to $12 per barrel between 1973 and 1975, but momentum dissipated as the crisis ended and prices fell. As a result, the political will to make tough energy decisions vanished. The threat to national security means that politics no longer stands in the way: Better to make hard choices today than send your children off to fight for oil tomorrow.

Earlier initiatives were also hampered by primitive technology. Today, however, fuel cells have reached the point where hydrogen is a credible substitute for oil. Outdoor-product maker Coleman recently released the first commercial fuel cell product, an emergency power generator for home use, and large fuel cells have been installed as backups in office buildings throughout the country. Hydrogen-powered buses are already operating in Toronto and Chicago, and soon will be in London, Madrid, and Hamburg. Iceland has embarked on an ambitious effort to convert its public transit and fishing fleets to hydrogen. The most encouraging sign is the investment by oil and car companies, not to mention venture capitalists.

If President Bush can implement this program, or something comparably aggressive, by 2013, all major car companies will sell fuel cell vehicles, and several new manufacturers will probably emerge to produce specialty hydrogen-powered items like sports cars and SUVs. Filling stations in the nation's six largest cities will carry hydrogen as well as gasoline; many will offer only the new fuel. Some refineries will be selling more hydrogen than gasoline, measured by both dollars and volume.

Imagine how the hydrogen economy will change geopolitics. OPEC will no longer be a factor in foreign policy. Relations with oil-producing nations will be based on common interests. The US will be free to promote democracy in countries like Nigeria, Saudi Arabia, and Iran. Bases in Saudi Arabia, Kuwait, and Qatar will be dismantled and naval forces in the Mediterranean and Persian Gulf sent home.

Even at that point, the transition will be far from complete. It will take decades to get every conventional car off the road, and even longer before hydrogen can be mass-produced using clean energy. In the long run, automobile fuel cells themselves might be tied to the grid, making it possible for vehicles to feed power into the system rather than simply consume energy. That is, electrical meters might run backward some of the time. Futurist Amory Lovins envisions a peer-to-peer energy network in which spot power is distributed to users from the nearest source, be it a utility station or a station wagon. Such a system would make the grid more efficient and power less expensive. This cheaper energy could be sold in bulk to businesses looking to cut costs, creating further momentum for the new fuel system.

In time, US fuel cell and hydrogen-extraction technology will provide enormous opportunities for developing nations like China and India, which will be the fastest-growing consumers of energy in coming decades. Because they don't have an adequate petroleum-based infrastructure today, these nations will be quick to take full advantage of hydrogen, leapfrogging developed countries. Cheaper than oil, the new fuel will empower poor countries, reducing their trade deficits and security threats.

The stakes are higher today than they were in Sputnik's wake. Unlike space travel, energy independence bears directly on US self-determination. The dangerous turmoil in the Middle East, the growing national security budget, the promise of technology that needs only a financial push - all these things make this the right moment to launch an Apollo-scale commitment to hydrogen power. The fate of the republic depends on it.

10 YEARS OF ENERGY INNOVATION

1995

General Motors rolls out an electric car, the Impact (later refined into the EV1), at the Greater LA Auto Show.

GE introduces the H System, a natural gas-burning turbine that uses gas, steam, and heat-recovery technologies.

1997
In Japan, Toyota unveils the Prius, the first mass-produced gas-electric hybrid.

1999
Chicago spends $8 million installing solar panels in old industrial sites to light municipal buildings and parks.

2000
The South African company Eskom begins construction on the first pebble-bed modular reactor, a safer kind of nuclear plant.

2001
Clean Energy Systems develops a power plant that runs on natural gas and releases steam and carbon dioxide.

2002
Honda leases the first of five fuel cell cars to Los Angeles. The 80-horsepower FCX's only emission: water.

Ireland approves the world's largest offshore wind park, 200 turbines on a sandbank 15 miles long and a mile wide.

Peter Schwartz (peter_schwartz@gbn.com) is a partner in the Monitor Group and chair of Global Business Network, a scenario-planning firm. Doug Randall (doug_randall@gbn.com) is senior practitioner at GBN. Schwartz, a former futurist for Shell Oil, is an investor in two companies developing hydrogen power technologies.