Will Hydrogen be the Fuel of the Future?

For decades byproducts of petroleum have fueled our industries and vehicles. Though the burning of these fuels has been the backbone of our economy they have had an adverse effect on our environment. As the fear of global warming rises; governments, entrepreneurs, and industries are spending millions to find what will replace oil byproducts. Hydrogen, one of the most abundant elements on earth, has become one of the fuels to challenge oil’s supremacy, but will it be the fuel to power the green revolution?
There are many pros to hydrogen fuel cells. In the fuel cells hydrogen is mixed with oxygen to create electricity to power a vehicle. Fuel cell vehicles emit no noxious gases; the byproducts of a fuel cell are water vapor and heat. The abundance of hydrogen makes it a perfect substitute from oil, which is a finite resource. Hydrogen can also be produced in large quantities domestically by using water from the great lakes, lessening our dependence on foreign sources of energy and creating jobs that cannot be outsourced. Currently hydrogen fuel is also being used in a variety of prototype vehicles from cars, buses, airplanes, rockets, and unmanned aerial vehicles (UAVs). Even with all of hydrogen’s benefits there are some major problems with hydrogen.
A major problem with hydrogen is that it does not occur naturally by itself in nature. Hydrogen is usually bonded to other elements due to the fact that it only has one electron that orbits its atomic structure. Hydrogen can be separated from water by using electrolysis, but this method is very expensive and power intensive. Most hydrogen now is processed from natural gas because of the high cost of the separation process. Another problem is the cost of the fuel cell within the car. Even though fuel cells have been in use for over fifteen years engineers have not found an innovative way to make fuel cells cheaper. These high cost make the hydrogen powered car to expensive for most consumers and not cost effective for companies to mass produce. At the present time there are only a few hydrogen fueling stations scattered around the country and for hydrogen to overtake gasoline a distribution system has to be built which would cost billions and would take decades to build and get running efficiently to satisfy the consumer s fuel needs.
Besides the problems that hydrogen has the industry has fierce competitors like electric cars and plug in hybrids that seemed poised to knock hydrogen down the list for alternatives. In 2009 US energy secretary Steven Chu eliminated public funding for hydrogen fuel cell research, but Congress rejected the idea and approved 300 million to continue research on hydrogen fuel cells. There are some in Congress that think that hydrogen will be the vital to repowering how America will travel in the future. As for an entrepreneur wanting to get in the hydrogen fuel cell industry it seems that without drastic innovation to bring down cost and the political will to start building distribution infrastructure, hydrogen fuel will not be the fuel to replace oil.

Follow up on Auto Bailout Post

Last year when the Detroit automakers went to Washington to ask for a bailout I wrote a blog post suggesting that rather than bail out businesses that don't seem to want to change the government should look to help entrepreneurial car companies. With the kind of money the automakers were asking for I suggested that these start ups, like Tesla Motors, could buy some of the closed auto plants. Now it looks like energy companies are doing just that, according to a story over at Bnet.

Creative Destruction of the Auto Industry via the Bailout?

Yesterday one of my students, Sam Cook, and I were talking before my Sustainable Business Venturing class began about the $25 billion that the auto industry wants. We both agreed that the money would be better spent supporting entrepreneurs. Some have suggested that the $25 billion come from money set aside for loan program for fuel-efficient cars. But with $25 billion, the government could foster a wave of innovative start ups in the auto industry that should do a much better job of developing and marketing more environmentally-friendly/fuel-efficient cars.

I don't think I'm the only one that doubts the automakers' ability and willingness to truly develop fuel-efficient cars. To do so would mean drastic changes and cannibalizing their existing product lines, which companies generally avoid doing, even when it means they could improve their company overall. On the other hand, there are several start ups making tremendous progress towards better cars. The most common example being Tesla Motors (most recently seen on a new Sci Fi channel game/reality show Cha$e). Besides Tesla there are many others around the world developing great new technology and if large sums of money were made available, many of the foreign-based companies would likely move to the US. The only way for the Big 3 to catch up would be to buy those companies. But why should these aging giants that clearly forgot basic business knowledge of market scanning to see trends take over these rising stars.

If you've studied economics it's likely you've been introduced to the term creative destruction, which is the basic idea of old industries being replaced by new innovative ones. One example that I remember from class, ironically, is that the auto industry 'creatively destroyed' the buggy industry. Once autos became commonplace, those making anything to do with the traditional horse and buggy went out of business. There was no bailout for them. The wise companies saw the trends and changed. The unwise? Well, they went on to become examples for future business students.

So here is a radical proposal: Set the $25 billion for a government-backed new venture capital (VC) firm to specifically invest in clean tech automakers willing to develop primary operations in the US. With that kind of money, companies like Tesla Motors can buy and modify production plants from the Big 3 and foreign-based companies would move to the US and hire US workers. That would keep jobs here, indirectly give the Big 3 some money to possibly stay in business, but also give them tremendous market pressure to improve the environmental performance of their vehicles (since I doubt that they will change much if the government tells them to change).