Creating a Hydrogen Economy:“Interesting Times: Themes, Trends and Issues”

American Bar Association Section of Environment, Energy, and

ResourcesRenewable Energy Resource Committee

January 18, 2006 Teleconference

Robert S. Faron, Moderator

Energy Practice Leader

Project Performance Corporation

McLean, VA

2

In the beginning…

Racecar driving had come a long way by the time this Mercedes-Simplex won on the Grosse Pointe track in Detroit in 1902.

Imagine you were sitting on a horse about 1895 or and watching a new-fangled contraption called an “motocycle” pass you by driven by inventor, J. Frank Duryea, in the first American car race that left Chicago's Jackson Park for a 54-mile race to Evanston, Illinois, and back through the snow. Suddenly you as a forward thinking person had the epiphany: I am going to design the system of transportation and utilization here in America that would use that technology.

•What system would you design and how would you do it? •What issues do you think you would confront?•What changes to the legal system would you contemplate?•What opportunities and barriers would you try and address?

Well, the current development of a commercially viable Hydrogen Economy is about in the same place as that forward thinking person was in 1895, but it may be an even more daunting task, due to the demands of regulations, competing financial needs, technology and political interests, resource issues, entrenched standards and codes, and a skeptical or ignorant public.

3

Themes

The current program’s approaches raise interesting themes related to research, funding, liability, priorities and government involvement:

Technology focus• Transportation, Stationary and Portable uses • Incremental H-ICE or fuel cell development• Infrastructure issues such as

Central generation, storage and distribution or Onsite generation, storage and distributed hydrogen generation

Commercialization pathways• Governmental supported or private commercial efforts• Municipal (state) vs. national vs. international• Major commercial fuel and car companies vs. entrepreneurial v. H2 technology

companies

Project management approaches• Regulatory• Codes and standards• Financing and Indemnification• Liability and Risk Management control

4

What trends are we observing?

Presidential recognition – President’s H2 Initiative – 2003

Energy Policy Act of 2005 Hydrogen title authorizing $1.92 Billion for hydrogen Supply R & D and $1.31 Billion for Demonstration for 5 years

Congressional bi-partisan activity since EPAct of 2005 several new bills boosting fuel cell vehicle choice

State programs proliferation, New York, California, Florida, Ohio

DOD identification as a “critical technology” and is single larges purchaser of fuel cell co-generation units

EU governments, Canada, investing heavily, EC support at over $70 Million annually for R & D

Japan R & D spending in 2002 over $220 million, tripling the 1995 expenditures; over 60 FCV in operational testing and 10 fueling stations already built near Tokyo , 450 additional stationary fuel cells to be installed in Japan this year

World bank Funding of fuel cell buses in five developing countries

Private investment estimates of $1-3 Billion annually

35 MW of cumulative stationary fuel cell generation capacity installed world wide

OEM Medis Technologies CEO says company plans to produce and distribute 100,000 “Power Pack” products

5

What are the future trends?

Continued federal appropriations support for R, D & D on generation, storage, distribution?

Demonstration Projects and Pilot Fleets funded by Government? Support for technology differentiation among Hydrogen Technologies? Infrastructure R, D & D investments interrelated with hydrogen technology

development? Federal Procurement leadership? Market entry support? Education and training for regulators and consumers? Address Safety , Health and Environmental Codes and Standards and

Barriers? Others?

6

What legal issues will arise?

1. Energy policy or regulation leading to commercialization: Are the Energy Policy Act approriations enough, and will earmarks devastate the DOE Hydrogen scheme?

2. Consumer interests in technology developments and safety issues or concerns?

3. Environmental, emissions, and regulatory permitting concerns?4. Land use and interaction with society issues including the size,

location and availability of generation, storage and distribution facilities?

5. What are the better approaches to R D & D: private/public procurement, leasing and contractual issues?

6. What liability and insurance issues exist for developers and early adopters of the technology?

7. Are there legal and regulatory barriers to developing the technology and what response should the political entities take?

7

Continued…

8. Financing issues and legal constraints on developing the technology are tax credits and other subsidies needed? At what points in the development cycle? 

9. What legal actions are needed for Federal and State efforts to advance and clear market entry for technology acceptance (e.g., credits, purchase agreements, tax benefits, loan support, leasing arrangements): a) Does the statutory framework needed exist under the New Energy

Policy Act of 2005? What are the types of additional legislation that will help or hurt, e.g., tax credits, R & D subsidies, public funding and purchase requirements?

b) Are the availability and character of incentives best left to government analysis, industry analysts or the market place investors who make real financial decisions)?

c) What is the interplay of market entry dynamics in the auto industry and among the energy and hydrogen fuel providers; (will mandating supply of fuel really create demand for the product)?

d) What is the role of the federal government, and its various branches? What is the role of the states and what is the role of industry? Does the current direction of government support make a difference?

8

Continued…

10. What competing technology and pathways that could displace, overtake, or delay commercialization, e.g., electric-hybrid, Hydrogen-ICE, CNG auto’s, and readily available gasoline supplies from tar sands and coal liquefaction or other renewable electricity fuel projects (wind, solar)?  If the federal funding is going to technology research, should governmental funding interests shift to supporting introduction of currently-feasible projects, i.e., stationary or military applications?  

11. How do international drivers work for and against Hydrogen Technology commercialization in the United States?

9

Into the future…

These and other questions will be addressed by the four panelists today.

But, I suspect their own observations will only trigger thoughts about the myriad of other issues that will arise on the pathway to commercializing the Hydrogen Economy.

Just as the horse-backed observer in 1896 had no idea of what lay ahead for the technology observed and what impacts it would have on that society, we now are just as ignorant of the future with a Hydrogen Economy seeking to displace a fossil resource backed economy.

10

Introduction of Panelists

Robert S. Faron, Energy Practice Leader, Project Performance Corporation,

“Creating a Hydrogen Economy: “Interesting Times”: Themes, Trends and Issues“

John A. Herrick, Chief Counsel, U.S. Dept. of Energy, Golden, Colorado“Working with the Feds on Hydrogen Fuel Cell & Renewable Technologies”

Peter R. Smith, President, NYSERDA“NYSERDA’s Activities to Commercialize the Hydrogen Economy”

Charles M. Pratt, General Counsel, American Wind Power & Hydrogen LLC“Legal and Policy Issues Leading to the Commercialization of Hydrogen

Technology”

Joseph Romm, PhD, Executive Director, Center for Energy and Climate Solutions

“The Seven Obstacles to Creating a Hydrogen Economy”