When Elon Musk unveiled the electric car for the average American—the Model 3—in March, more than 325,000 people pre-ordered it in the first week.  The buzz for a car that’s at least a year away from hitting the road showed the excitement for an alternative to the typical gas-guzzler. But at a time of low gasoline prices, is there room in the market for anything other than electric vehicles (EVs)? Toyota is willing to find out. Last year, the company introduced the Mirai—the first mass-produced hydrogen fuel-cell vehicle—after the car saw much success in Japan the previous year.

“Like electric vehicles, hydrogen-fueled vehicles emit zero pollution or greenhouse gas emissions—only water vapor. Unlike EVs, they have a refilling and driving range similar to normal gas-powered cars. One would think these features would be very appealing,” says Robert Rosner, founding co-director of the Energy Policy Institute at the University of Chicago (EPIC) and the William E. Wrather Distinguished Service Professor in the Departments of Astronomy & Astrophysics and Physics and at the Harris School of Public Policy.

But, despite significant technological advances that have drastically reduced the cost of hydrogen fuel-cell vehicles in the past few years, they are still expensive. The Mirai comes in just under $60,000. While that’s less than the cheapest Tesla EV on the road today, it’s almost double what the Model 3 promises and about double the cost of the top-selling EV on the market now in the U.S., the Nissan Leaf.

Weighing the pros and cons, Rosner and his colleagues at the University of Chicago Robert Topel and Ryan Huffman surveyed published studies, talked with experts and ran extensive simulations to determine under what circumstances the cars could achieve widespread market acceptance. Their conclusion: hydrogen fuel-cell vehicles have a very bumpy road ahead.

On top of their high price tag, hydrogen fuel-cell vehicles have other disadvantages. Namely, despite some efforts by Toyota, a hydrogen fueling network is virtually nonexistent in the U.S. and would be expensive to build. Also, most hydrogen fuel is produced by burning natural gas to create hydrogen, a process called steam methane reformation. Natural gas is cleaner than gasoline, but the process does undercut the environmental benefits.  There’s also the challenge of low gasoline prices.

“It’s tough for any alternative vehicle to survive with low gas prices, let alone one that has to compete with the growing popularity of EVs and has many other major obstacles to surmount,” says Topel, also a founding co-director of EPIC and the Isidore and Gladys J. Brown Professor at the Booth School of Business.

Scenarios do exist where hydrogen fuel-cell cars could look like a good investment. Natural gas prices could rise, dooming compressed natural gas vehicles like those being built by Honda.  EVs may never reach the range and refueling times the average American requires. The U.S. could put money into quickly building out the hydrogen refueling infrastructure and hydrogen production costs could sharply decline. And, society could rapidly demand environmentally-friendly vehicles.

“It is not impossible that any of these events could occur,” says Topel. “But our analysis shows that most, if not all, of these events would need to happen for hydrogen fuel-cell cars to become the cars Americans drive over the next several decades. The odds of that don’t look good.”

Without that, the authors say one of two things must happen for hydrogen fuel-cell vehicles to dominate the market: a significant technological breakthrough and/or sufficient policy efforts to encourage low-carbon cars.

On the technology side, there is some hope of a transformative breakthrough, they say. Researchers have taken big strides in making electrolysis—a process that uses electricity to separate water into hydrogen and oxygen—both cheaper and cleaner. For example, a 6 megawatt hydrogen electrolysis production pilot plant recently went online in Germany that is powered by the surplus energy resulting from intermittent wind energy. Its leaders say it has the capacity to supply 100 percent clean hydrogen fuel to 2,000 vehicles. Researchers in U.S. national laboratories have also announced breakthroughs. They’ve found ways to allow the process to be completed using cheap carbon as a catalyst in fuel cells, rather than the expensive metal—typically platinum—currently used.

“These recent advancements—in addition to advancements being made in Japan—demonstrate the potential for hydrogen to be a truly cheap and clean source of energy,” says Ryan Huffman, a graduate of the Harris School of Public Policy. “Without them, the greatest hope is in the hands of lawmakers. And, it’s unlikely a sufficient carbon tax—of about $300 per ton of carbon—would be instituted to really allow hydrogen fuel-cell vehicles to dominate the market.”

Where hope exists, it exists in the Golden State, say the researchers. A few years ago, California started a zero-emission vehicle mandate that requires a certain percentage of automakers’ sales be vehicles that don’t emit any greenhouse gases. In June, the state announced two government entities—Sacramento county and the city of Long Beach—would begin using a few Mirai cars.

“Some people eyeing luxury cars may indeed see the benefits of the longer range and quicker refueling to turn to hydrogen-fueled cars,” says Rosner. “But in a world of cheap gasoline prices, even if policies are in place to encourage automakers to make the cars, it’s hard to imagine many turning their backs on their gas guzzlers.”

 

This work was supported by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy.

Areas of Focus: Energy Markets
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Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Electric Power
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Electric Power
As the electric power system faces new pressures and opportunities, EPIC research is working to identify the mix of policies needed to accelerate the global transition to clean, reliable, affordable...
Energy Efficiency
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Energy Efficiency
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Fossil Fuels
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Fossil Fuels
Under current policies, fossil fuels will play an important role in the energy system for the foreseeable future. EPIC research is exploring the costs and benefits of these fuels as...
Transportation
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Transportation
Mobility is central to economic activity. Yet, a lack of fuel diversity and continued demand growth have made the transportation industry a major contributor to global pollution and carbon emissions....
Renewable Energy
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Renewable Energy
Lower technology costs and supportive public policies are driving an increase in renewable energy in markets around the world. EPIC research is assessing the costs, benefits, and efficiency of policies...
Climate Change
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Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
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Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...