Political Economy and the Hydrogen Revolution

Working Papers

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The Program on Energy and Sustainable Development Working Paper #17

September 2003

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In recent years, the professional punditry has lofted hydrogen into the firmament of technological wonders. A "hydrogen revolution" is now the most often touted remedy to threats to energy security and the specter of climate change and other environmental harms caused by burning fossil fuels the old fashioned way-combustion. Even as a few doubters question the economics and wisdom of this revolution, today's stewards of conventional wisdom question not whether the hydrogen revolution will occur but, rather, the exact timing and sequence of events what will propel modern society to that shining hydrogenous city on the hill.

It is not the price of the energy carrier that will be the main factor in the hydrogen revolution because the cost of creating hydrogen is already in the noise of all the major energy carriers. Rather, the key question is what will make users switch from today's carriers-refined petroleum and electricity-to something new? The incumbents are locked in to the current technological suite, and lock-in effects can be powerful deterrents to new competitors. We address this question-the prospects for technological change by users-from three perspectives. First, we examine the rates of change that are typically observed in technological systems. There has been much ambiguity in the discussion of a hydrogen revolution about how rapidly the revolution could unfold. That ambiguity, in turn, has led to wildly unrealistic expectations and perhaps also implausible research and development strategies. Second, we examine the responses by competitors-notably petroleum and electricity-to a new entrant that tries to steal their market. Past technological transformations have seen ugly replies by the incumbent. Will those replies be fatal to the upstart hydrogen? Third, we examine the crucial role of niche markets. New technologies rarely arise de novo in the mass market. Rather, they are improved and tailored in niche markets, from which they gain a foothold for broader diffusion. What are the possible niche markets for hydrogen, and how might those markets be constructed and protected?

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