The myriad obstacles inherent in the transition to a hydrogen economy deter financiers, acknowledged Jerald Cole, an executive at Hydrogen Ventures LLC, who was brought in as an outside expert to comment on the Economy Topic Team's draft report. Cole put the cost/benefit ratio in perspective by offering an analogy to the ascent of ammonia as the dominant chemical fertilizer. That evolution can instruct officials guiding the nascent hydrogen energy infrastructure.

"Why bother with hydrogen? It's an antagonistic question," Cole told us after his presentation Tuesday. "The hydrogen economy is inevitable. This needs to be done, and we need to prepare."

The alternative is to wait until there is a catastrophic event in the traditional energy industry. Such an event would probably trigger a severe economic slowdown and force a sudden shift to hydrogen. Compared to such a scenario, the oil price shocks of the 1970s would appear as mere inconveniences.

"No one wants history to show a massive economic crash forced us to finally develop hydrogen," said Cole. "We'd rather see vignettes, that one step followed another, in a deliberate process to avoid a severe energy disruption and its associated economic calamity."

California is taking the lead, developing a statewide Hydrogen Highway. The effort is fraught with challenges, particularly with respect to the cost of the fuel, which hampers widespread commercialization. Cole, Hydrogen Ventures' chief technology officer, calculates the current cost of hydrogen at $7.40 per gasoline gallon equivalent (gge). That's higher than the U.S. Department of Energy's calculation, but Cole believes his number more accurately reflects the stability of high natural gas prices, the primary feedstock of hydrogen for the foreseeable future, and the high cost of diesel fuel, which will be used to deliver hydrogen to distribution stations. Pipeline deliveries of hydrogen are expensive, unless volumes are very high, and there simply aren't going to be high-volume hydrogen stations in the early stages of the transition, he pointed out. The gasoline gallon equivalent price could be lower at those stations built to offtake hydrogen from an existing high-volume pipeline. Cole hopes the Economic Team will consider a scenario of building stations along existing hydrogen pipelines and mandating that the price of hydrogen for the refueling site matches the industrial end-user's price.

"Even so, the parasitic approach of putting a refueling station at a pipeline might not result in a significant hydrogen price reduction," he said. "Natural gas accounts for 60% of the cost of hydrogen, meaning hydrogen will struggle to come down to the Energy Department's target of $1.50 gge by 2010."

The high cost of hydrogen coupled with the high cost of fuel cell vehicles suggests there will be few users beyond fleet operators, a realization that keeps financiers wary. The few private early adopters will be well-to-do buyers who are unaffected by high prices and are attracted by the uniqueness and exclusivity of the technology, Cole said.

"Since hydrogen cannot compete with gasoline on a cost-per-unit of energy basis, and better fuel efficiency not likely to make up the difference, it's not obvious how mass introduction can happen soon. As a result, there's no clear model for private investor return on investment."

But development does occur in the face of technical and financial obstacles, Cole reminded attendees. In the 19th Century, population growth was exceeding food supply. Agriculture discovered nitrogen fertilizer, which dramatically increased food production, but the largest single source was in Chile, making it difficult to supply.

"Fritz Haber won the 1918 Nobel Prize for developing chemical process for producing ammonia. The food supply crisis was averted, and today, ammonia is second only to sulfuric acid in terms of chemicals production worldwide. Some 40 % of the world population is alive because of ammonia."

Between process discovery and widespread use was a 35-year learning curve, during which farmers began to use ammonia as fertilizer, standards were developed and infrastructures were developed.

"Now do you understand the 'why' of why bother?" he asked. "Even though hydrogen technology is not ready and fossil energy supply is not yet critical, we need to be prepared to avert crises."

Rationalizations such as that don't necessarily unleash a flow of capital to an unattractive sector that offers little or no near-term return. For that reason, the Hydrogen Highway developers need to elicit participation from public as well as private financiers.

"We need the participation of both," Cole said, citing the widely held position that the hydrogen network will yield private and public benefits.

Financing should include incentives, rather than mandates, to petroleum fuel suppliers in order to marginalize investment on their part and avoid technology-specific approaches.

Redistributing gasoline taxes is probably not feasible and would likely require an increase in the gasoline tax, Cole warned.

A carbon tax, regarded as a means of influencing social behavior, would be broad to apply only to financing the Hydrogen Highway. "If we're going to have a carbon tax, it should not be limited to financing the Hydrogen Highway," he said.

Cole does support a tax on less efficient and high price vehicles as a means of financing the project.

Revenue or general bonds could play important roles, but these tools raise the question of how bonds would be repaid.

Financing considerations must include vehicles. "It won't work without the cars, no matter what else you do," said Cole. "Mandate public fleet participation and usage of public hydrogen refueling stations. And even if there are no real profits for a long time, remember ammonia."

—Carol Cole