Billions are at stake as Schwarzenegger's cleaner-fuel drive takes its first steps

By Aurelio Rojas
Sacramento Bee
The artery of fuel stations known as the hydrogen highway that Gov. Arnold Schwarzenegger predicts will take California motorists to the environmental future is already taking shape.

Twenty-one of the 200 stations are scheduled to be in operation by year's end. With the public sector pledging to pick up most of the $100 million cost, meeting the governor's 2010 target date will be the easy part.

Much more difficult than building stations at 20-mile intervals along California's interstate highways will be providing consumers with hydrogen-powered vehicles and fuel at prices they can afford.

California is the world's largest car market, and auto and energy companies are positioning themselves for the billions of dollar at stake.

"There are lots of folks who are looking to make money out of this ... most won't," said Terry Tamminen, the governor's top environmental aide, who likens the market to the early days of the dot-com boom.

The West Sacramento-based California Fuel Cell Partnership, launched in 1999 by Gov. Gray Davis, includes many of the nation's leading auto and energy companies.

The partnership's hydrogen initiative is not without detractors.

David Keith, associate professor of engineering and public policy at Carnegie Mellon University in Pennsylvania, calls hydrogen "a joke in terms of the cost per unit of air pollution reduced."

"If you wanted to get after that in a cost-effective way in California, you might more seriously regulate diesel engines and heavy trucks," Keith said.

Those proposals would meet stiff political resistance, Keith said, but he believes the Bush administration's proposal to spend $1.7 billion over five years on hydrogen car projects is a waste of money.

He and other skeptics of the "hydrogen hype" warn that by making hydrogen a centerpiece of his environmental policy, Schwarzenegger may be discouraging development of more immediate and affordable alternatives.

Tamminen, head of the California Environmental Protection Agency, said possible solutions are not "either-or propositions." Multiple fuels and propulsion systems - including hybrid vehicles - will be part of the transition, he said.

"We don't necessarily have to wait for the perfection of (hydrogen vehicles)," Tamminen recently assured the Assembly Select Committee on Air and Water Quality.

Critics say California has been down a similar road before, spending money, for example, on charging stations for inefficient electric cars that did not find a market.

Tamminen counters that with electric cars and fuel alternatives such as methanol and ethanol, "there were always limitations."

"With hydrogen, on the other hand, the car companies themselves have spent billions and have said, 'We see this as the next technology,' " Tamminen said. "From the fuel side, unlike the limitations on those other fuels, hydrogen can be made from so many different things."

Tamminen admits it may be decades before the industry matures. For now, hydrogen fuel made from a hydrocarbon-like natural gas costs about $4 per gallon.

The process requires separating hydrogen from carbon, which is discarded into the atmosphere as carbon dioxide.

Environmentalists favor using water, but that costs three times more because it takes electricity to extract hydrogen.

Most of the first generation of hydrogen vehicles will be powered through a process that requires burning fossil fuels. But as technology improves, proponents envision renewable sources will become the norm.

Supporters of the hydrogen economy - who include most environmental groups - predict these vehicles will be dramatically more efficient than today's internal combustion engines.

But David Morris, vice president of the Minneapolis-based Institute for Local Self-Reliance, estimates the cost of replacing internal combustion engines in California will exceed $50 billion.

Morris maintains that ethanol would be a much cheaper alternative, but hydrogen has a panoply of powerful political patrons who stand to profit from its growth.

"One reason that a hydrogen economy has no strong and public critic is that everyone gets to play because it does not exclude any energy source," Morris said. "You can make hydrogen from nuclear power. ... You can make hydrogen from coal. You can make hydrogen from natural gas and from wind."

As demand relentlessly pushes gasoline prices toward record highs – and political turmoil threatens the flow of foreign oil - automotive and energy industries are peddling hydrogen as a long-term solution.

Companies like Honda and Toyota, which in 2002 became the first automakers to introduce hydrogen vehicles in the U.S. market, and Air Products and Chemicals Inc. are bullish on the emerging technology.

But they recognize a fueling infrastructure must be put in place and technological hurdles must be overcome before there is consumer demand for their products.

"Hydrogen is the pathway to sustainable transportation through renewable energy, and fuel cell vehicles are the tools for the sustainable transportation," said Dave McCarthy, Air Products and Chemicals manager for future energy solutions.

The Pennsylvania-based company, which provides hydrogen for Honda's and Toyota's demonstration vehicles, will have 10 fueling stations in operation in California by summer and plans to build more.

Bill Rheinert, national manager for the Toyota Motor Co., cautioned the Assembly panel that the automotive industry is years away from developing cheaper and long-lasting fuel cells that will meet consumer needs.

Tamminen said the Schwarzenegger administration "appreciates and understands the challenges and hurdles, technological and others, that have to be overcome."

"The reason for the 2010 (target) is that we heard from both (General Motors) and Toyota and other companies that tens of thousands of competitively priced vehicles will be available in California by (then) if fueling infrastructure is in place," Tamminen said.

California must also meet federal clean-air standards by 2010 or lose billions of dollars in highway funds, he said.

Tamminen conceded that even if there are 1 million hydrogen-powered cars in California by then, which he admits is optimistic, they aren't going to make a "big dent" in a state that will have 30 million vehicles.

For now, hydrogen-powered vehicles remain out of the price range of the average consumer. The battery-powered vehicle that Sacramento-based Anuvu Inc. will begin delivering to customers this summer carries a $99,995 price tag, not unusual in the current marketplace.

In his State of the State speech, Schwarzenegger vowed to "encourage the building of a hydrogen highway" to take California to the environmental future.

Tamminen said the GOP governor has been pressing federal officials for aid to complete the highway with the hope of procuring $20 million to $30 million from the Bush administration's $1.7 billion initiative.

"Once commercialized, the marketplace can take over, possibly even assisted by revenue bonds, (but) we need to prove the model," he said.

In the next month, Tamminen said, the governor will unveil details of his plans. Schwarzenegger, who drives a Humvee that gets 10 miles per gallon, vowed during his campaign to convert the vehicle to run on hydrogen.

"I'm not going to steal the governor's thunder, but I will tell you he always keeps his campaign promises," Tamminen said.