This chapter, by PESD fellow Thomas Heller and PESD affiliate P.R. Shukla, was published by the Pew Center on Global Climate Change in 2003 as part of their "Beyond Kyoto" series.

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?

Energy development, interpreted broadly to mean increased provision and use of energy services, is an integral part of enhanced economic development. Advanced industrialized societies use more energy per unit of economic output and far more energy per capita than poorer societies, especially those still in a preindustrial state. Energy use per unit of output does seem to decline over time in the more advanced stages of industrialization, reflecting the adoption of increasingly more efficient technologies for energy production and utilization as well as changes in the composition of economic activity (see, e.g., Nakicenovic 1996). And energy intensity in today's developing countries probably peaks sooner and at a lower level along the development path than was the case during the industrialization of the developed world. But even with trends toward greater energy efficiency and other dampening factors, total energy use and energy use per capita continue to grow in the advanced industrialized countries, and even more rapid growth can be expected in the developing countries as their incomes advance. The fact that expanded provision and use of energy services is strongly associated with economic development leaves open how important energy is as a causal factor in economic development. Development involves a number of other steps besides those associated with energy, notably including the evolution of education and labor markets, financial institutions to support capital investment, modernization of agriculture, and provision of infrastructure for water, sanitation, and communications. This is not just an academic question; energy development competes with other development opportunities in the allocation of scarce capital and in the allocation of scarce opportunities for policy and institutional reform.