Is clean enough? The influence of environmental externalities on markets for fuel cells in transport

This paper explores the influence of environmental costs on the economic assessment of a novel energy conversion technology-fuel cells-in transport applications. The situation of the fuel cell is investigated by setting up a model of a fleet of urban buses, widely regarded as one of the earliest applications for these devices, for a time in the near future (5-10 years from now). Most cost parameters correspond to the present, except the assumed cost of the fuel cell of $300 per kilowatt, a value that has not been achieved today but that is believed possible in the future. The private cost for the fuel cell driven bus exceeds that of its diesel counterpart by between 23 and 33%, depending on the vehicle size. However, the fuel cell can become competitive through economies of scale in the chemical plant required to generate the hydrogen fuel. The inclusion of environmental externalities in the framework of a social cost calculation fails to shift the balance unambiguously in favour of the fuel cell, in spite of the superior environmental performance offered by this technology. One reason is that a social cost calculation has to exclude transfer payments (taxes) which are substnatial for conventional road fuel. Adopting the hgihest published values of external costs leads to the fuel cell bus emerging as the preferable option, with a social cost at between 89 and 95% of that of the diesel. However, such a difference is not enough to convincingly make the case for the fuel cell. Therefore, if fuel cells are to enter the transport market, they have to become more competitive in terms of private costs alone. They cannot rely on the monetary evaluation of environmental externalities to make their case.