SUPPORTING HYDROGEN FOR THE TRANSPORT SECTOR: A COMPARISON OF INCENTIVES FOR PRODUCERS AND CONSUMERS IN EUROPE AND THE US

Costs for disruptive technologies such as hydrogen, are high in the first phase of market introduction. Therefore, policy support is needed to facilitate the introduction of hydrogen. But, how can the government support and stimulate (early) market introduction and use of hydrogen in the transportation sector? What kind of policy instruments are needed in what phase of the introduction trajectory? And what are the current instruments in the EU and US?

Generally, the hydrogen chain can be stimulated by providing an investment subsidy, subsidy on running cost, tax exemptions and an (production or sales) obligation. In the case of hydrogen, incentives can be provided in the whole chain, form production, distribution to the end-use. Finding the right mix so the end-user does not have to pay more compared to the reference technology and all parts and all technologies of the hydrogen energy chain are stimulated equally is key for the a successful introduction of hydrogen in the transport sector. Finding the right balance of support for production, distribution and end-use of hydrogen also has to take into account there are several technologies within each segment (e.g. hydrogen can be produced using several technologies) and the novelty of a technology (e.g. ensuring that renewable technologies that are at the moment less cost competitive but which have a high future potential are already being developed).

After reviewing which policy support measures are in place at the moment (see table 1) it becomes clear the philosophy with respect to how innovations have to be stimulated seems to differ between the EU and the US. In Europe, the innovation trajectory usually exists of a phase of technology protection with limited selection up front of which technology is the ‘best', followed by a phase of competition, eventually leading to obligations (e.g. by excluding old technology). In the US (in fact: California), already in the first phase of technology introduction, a clear choice has been made for hydrogen and fuel cell vehicles by setting obligations. This obviously imposes very strong incentives for technology development and deployment but also imposes major risks. Setting obligations too ambitious will lead to excessive costs, assuming that the target level actually can be met. This can have a very negative impact on the support and acceptance of a new technology, leading to a hampered deployment.

It is concluded that the current incentives for the deployment of hydrogen vehicles in the US are stronger than the incentives in Europe due to more favorable financial support schemes (e.g. higher subsidy rate) as well as the obligatory deployment through the ZEV mandate and obligated procurement for government fleets. This may lead to a delayed deployment of hydrogen in transport in Europe, but does not mean that the incentives that are currently in place in the US should be copied to Europe. As said before, setting obligations on the deployment of a new (disruptive) technology that is in an early phase of introduction imposes high risk. However, opportunities exist to increase the effectiveness of the (financial) support schemes, by designing it in a way that it tackles the technology specific barriers at the part of the energy chain where they occur.

TABLE

Table 1 Comparison of the incentives for hydrogen in the transport sector for the US and EU

	US	EU
R&D subsidy	50% funding	50% funding
Demonstration subsidy	50% funding	35% funding (2007: 50%)
Investment subsidy	30% of cost for refueling station, up to $30,000	-
Tax exemptions	Accelerated depreciation Fuel duty relief Consumer rebates Environmental tax	Car purchase tax (some EU Member States)
Public Procurement	State can obligate government fleets to replace 75% of new vehicles by alternative fuel vehicles	-
Obligations	ZEV regulation Purchase obligation	-

ACKNOWLEDGMENT

HyLights is an integrated project, co-funded by the participating industry partners and funded by the European Commission (EC) under the 6^th Framework Programme [contract N° TREN/05/FP6EN/S07.53917/019990].

REFERENCES

ECN (2006) Policy support for large scale demonstration projects for transport: Summary report HyLights phase I, Energy research Centre of the Netherlands (ECN), Petten/Amsterdam

ECN (2006) Policy support mechanisms for hydrogen use in transport: The role of financial and other incentives in the support of large scale demonstration projects in the transport sector, Energy research Centre of the Netherlands (ECN), Petten/Amsterdam