Hydrogen Fuel Incentive Advances On Capitol Hill

Looking beyond short-term solutions to the nation's current energy crunch, lawmakers are pushing for more incentives to spur development of breakthrough technologies that would move the oil-dependent U.S. toward a hydrogen-based economy.

"Suddenly, the whole nation is focused on gas prices and our addiction to oil, and Congress is in a panic trying to figure out how to respond," House Science Committee Chairman Sherwood Boehlert (R-N.Y.) remarked at a committee meeting in late April. "Our options in the immediate future are limited, but our options in the mid- and long-term are not. Unless we exercise those options, we are going to lurch from oil crisis to oil crisis, and each one is going to get worse."

One strategy that has gained support on Capitol Hill in recent months is the establishment of a national prize competition to encourage the R&D necessary to overcome the technical barriers that currently stand in the way of hydrogen becoming a practical alternative to oil in fueling the transportation sector. Modeled after the $10 million Ansari X Prize, which spurred the first privately funded suborbital spaceflight in 2004, the H-Prize would provide millions of dollars in cash awards for scientists and inventors who successfully advance hydrogen technology as an alternative source of fuel.

Sponsored by House Research Subcommittee Chairman Bob Inglis (R-S.C.), the H-Prize Act of 2006 directs the Department of Energy to contract with a private foundation to establish criteria for the prizes and administer the contest. A $10 million grand prize would be awarded for creating a "transformational" technology that brings the hydrogen car to driveways around the country.

Four prizes of up to $1 million each would be awarded every other year for technological advancements in research, and a $4 million prize would be awarded every two years for the creation of hydrogen vehicle prototypes. Altogether, the proposal authorizes $52 million in federal funding between fiscal 2007 and 2016. If no one makes a significant breakthrough within those 10 years, the H-Prize would expire.

Inglis hopes the bill will stir scientific competition to overcome the production costs, storage issues, and distribution problems that now make hydrogen impractical for large-scale commercial use. Scientists and engineers have pursued hydrogen as a fuel since the 19th century. In 1870, Jules Verne incorporated the concept of using hydrogen as an energy source in his science-fiction classic, "20,000 Leagues Under the Sea."

"This is no science project. A hydrogen future is closer than we think," Inglis declared after the House overwhelmingly approved the H-Prize legislation by a 416-to-6 vote on May 10. "We in government need to show a commitment similar to President Kennedy's commitment to the moon launch and a threat awareness similar to that which drove the Manhattan Project."

The South Carolina Republican said addiction to oil is putting the country at enormous risk. "We are treading water in a sea of rising demand for petroleum. China and India and other developing economies are thirsty for oil, and they're driving up the price of gas at the pump. Switching to hydrogen rather than depending on the Middle East for oil is our generation's moon shot."

Inglis also insisted that the proposed prize money would not divert funds from other DOE research programs, including a $1.2 billion initiative announced by President George W. Bush in his 2003 State of the Union address that seeks to accelerate hydrogen-related research to overcome obstacles in taking zero-emissions fuel-cell vehicles from the laboratory to the showroom. The goal, which will be accomplished through partnerships with the private sector, is to develop the technologies needed to make it practical and cost-effective for large numbers of Americans to use hydrogen-powered fuel-cell vehicles by 2020.

As part of that effort, DOE and General Motors signed an $88 million agreement in March 2005 to build a 40-vehicle fuel-cell fleet and further develop the technology. GM intends to deploy demonstration fleets in Washington, D.C.; New York City; California; and Michigan by 2009. DOE has also entered into hydrogen energy development agreements with Ford, DaimlerChrysler, and Hyundai.

At the Washington Auto Show in January 2006, Energy Secretary Samuel W. Bodman announced that his department would provide another $119 million in funding over five years and a research road map aimed at identifying and overcoming the technical and manufacturing challenges associated with the further development of commercially available hydrogen vehicles. "Investments in fuel-cell and hydrogen research today will enable America to lead the world in developing clean, hydrogen-powered automobiles that will reduce our dependence on imported oil," Bodman declared.

The technology faces a number of significant hurdles, not the least of which is its cost. Electricity is required by many hydrogen production methods, which so far makes hydrogen more expensive than the fuels it would replace. Gasoline is still easier to store than hydrogen, which needs to be compressed or kept at very cold temperatures. DOE has identified storage as the biggest technical challenge in effectively using the element as an alternative fuel source. In addition, an infrastructure would have to be built and paid for to produce, transport, and store large quantities of hydrogen.

But lawmakers expressed optimism while debating the H-Prize on the House floor. "Hydrogen holds enormous potential as the base of our future economy, but we must take action today to ensure that we have the technology that we need tomorrow," said Rep. Daniel Lipinski (D-Ill.), a cosponsor of the legislation. "The H-Prize will help us get there by inspiring researchers, entrepreneurs, and others to compete to find the keys to developing and commercializing hydrogen fuel."

Boehlert suggested that hydrogen may be the "holy grail" of transportation fuels. "If we are able to overcome the technical barriers that currently block its widespread use," he said, "the potential payoff will be huge: cleaner air, less global warming, and, most important, an economy that is not held hostage by foreign regimes or volatile oil markets."

Boehlert also noted that the National Academy of Sciences has encouraged the government to experiment with prize competitions. "Prizes can draw out new ideas from scientists and engineers who may not be willing or able to participate in traditional government R&D programs, while encouraging them, rather than the taxpayer, to assume the risk," he observed.

The lure of a financial reward has helped inspire great pioneering achievements throughout American history. In 1862, President Abraham Lincoln signed into law the Pacific Railway Act, which provided federal support for the construction of the nation's first transcontinental railroad. The rail companies received several inducements, including a subsidy for every mile of rail they laid, and the monumental task was completed within seven years.

And in 1919, New York hotel owner Raymond Orteig offered a prize of $25,000 for the first nonstop flight from New York City to Paris, or vice versa. Several aviators made unsuccessful attempts at flights across the Atlantic Ocean before Charles Lindbergh pulled off the feat in 1927 and won the Orteig Prize in his airplane, the Spirit of St. Louis. His success helped the fledgling aviation industry take off.

At a Science Committee hearing on April 27, hydrogen experts and business leaders said monetary incentives could supply the motivation that researchers need to make major new breakthroughs. Phillip Baxley, president of Shell Hydrogen, testified that the H-Prize would stimulate involvement and innovation across a much broader community than existing DOE programs and funding alone can provide.

"For example, student competitions, universities, small labs, start-up companies, and, my favorite, even folks in their garages can participate," Baxley said. "The H-Prize will raise the profile of hydrogen on the national stage and demonstrate visible leadership from Congress on an issue that is important for the economy, for the environment, and from a national security perspective."

If properly designed, prize awards such as those proposed in the H-Prize Act can spur investment, fundamentally change thinking about problems, and offer solutions no one would expect, added Peter Diamandis, chairman of the X Prize Foundation, a nonprofit organization dedicated to fostering innovation through the use of competitions.

"Inducement prizes are fundamentally different from conventional research and development funding," Diamandis pointed out. "They define a problem and pay for successful solutions. They do not pay for the work itself, they do not define or prejudge technical approaches, and they do not prejudge qualifications."

Diamandis said prizes can generate significant investment from the private sector because victory often leads to highly desirable prestige and publicity. "The competition [for the Ansari X Prize] caused teams to spend more than $100 million to win the $10 million purse and attracted more than 5 billion media impressions that changed the public paradigm that spaceflight is only for government employees," he told the committee.

Prize teams are able to attract capital, which is put up by corporate sponsors or wealthy individuals who encourage risk-taking because they seek the publicity and desire to win, Diamandis explained.

David L. Greene, a corporate fellow specializing in transportation and energy policy issues at Oak Ridge National Laboratory, testified that imported oil added $230 billion to the U.S. trade deficit in 2005. "By my best estimate, the economic costs of our oil dependence over the past three decades exceed $3.5 trillion," he added.

"I know of nothing that could do more to solve our nation's energy problems in the long run than the creation of technologies to enable clean, efficient, economical hydrogen-powered transportation," Greene stated. "Major technical barriers stand in the way of achieving this goal, but I believe the H-Prize Act would increase the likelihood of overcoming these barriers by mobilizing creative minds that might not otherwise tackle them."

David Bodde, director of innovation and public policy at Clemson University's International Center for Automotive Research, in South Carolina, called the H-Prize concept an innovative policy that "could do much to accelerate this greatly needed transition from petroleum to a hydrogen economy." He expressed concern, though, that the top prize originally proposed by Inglis-$10 million in cash and up to $90 million in federal matching funds for private capital-might prove redundant. "Entrepreneurs and venture capital investors seek opportunities with demonstrable potential for exponential growth, which is exactly the kind of venture that appears to be contemplated in the prize description," Bodde said.

Rep. Judy Biggert (R-Ill.), chairman of the Science Committee's energy panel, also questioned the need for the government to provide such a large incentive. "Isn't a billion- or trillion-dollar market prize enough? Isn't this enough of an incentive to encourage scientists, engineers, entrepreneurs, and energy companies, large and small, to invest in the development of fuel cells and new and innovative ways to produce and store hydrogen?" she asked.

"I am in no way convinced that we need to spend $100 million on such a prize," Biggert added, noting that the Nobel Prize, "the prize of all prizes, is only a $1.3 million award." She also expressed doubt that Congress would be able to find the money to fund the proposed prizes without taking dollars out of other federal energy R&D programs.

Before clearing the bill for consideration by the full House, committee members agreed on May 3 to reduce and cap the federal contribution to the grand prize to $10 million. "The idea of prizes is that a relatively small financial prize is used to stimulate interest from the private sector and private investors, thereby leveraging the investment," Rep. Mike Honda (D-Calif.) pointed out. "I am not sure whether a large award is necessary to stimulate interest, given the vast potential reward that a company that develops a transformational technology could reap."

Sens. Lindsey Graham (R-S.C.) and Byron Dorgan (D-N.D.) introduced a companion bill on May 11, which has been referred to the Senate Energy & Natural Resources Committee. "It would be irresponsible if 50 years from now, we are still reliant on Middle Eastern oil to drive our national economy," Graham told reporters at a briefing. "The H-Prize is a clear signal from the federal government that we are interested and believe in a hydrogen-based transportation system. The H-Prize puts our money where our mouth is."

Dorgan said fossil fuels will always be a part of the energy mix, but developing new domestic sources of energy is more important today than ever before. "The H-Prize will provide a powerful incentive for research and advancement in one of the most promising new areas on the horizon, developing hydrogen fuel cells and making them an integral part of our economy," he remarked.

Graham believes the legislation can pass the Senate and become law this year. "I don't think this has any obstacles. If the House can pass it with 416 votes and the Senate can't, then shame on us," he said. Even if the H-Prize Act is enacted, the money for the awards would still have to be appropriated later by Congress, an unpredictable process.