Conclusions on the EU Policy Framework and Recommendations

The screening of existing EU policies unfolds some inconsistencies in the macro-framework for hydrogen promotion. The EU is strongly committed to reduce GHG as shown by its role in the Kyoto Protocol framework and the Council conclusions. Hydrogen and fuel cells are conceived as an instrument to reduce GHG. The EU therefore strongly supports research and development in this field through its Framework Programs. However, the EU policy framework for the promotion of hydrogen is not as strong and coherent as its commitment to these technologies may suggest.

First, the EU lacks a clear mid to long term strategy explaining the desired role of different energy sources and carriers. In view of avoiding lock-in effects, this absence of technological preferences is understandable. Yet, biofuels which are unlikely to be a sustainable long term solution for the global energy challenge and may even be competing with hydrogen are promoted by EU policies too. It is not clear whether the EU conceives biofuels as an instrument for transition management or whether biofuels are understood as a potential long term solution. If the latter were the case, hydrogen technologies would directly compete with biofuels. Since this is under responsibility of member states, the EU should use the Lisbon method to develop a coherent strategy together with Member States which also embraces policy for the long term ramp-up of carbon-free energy sources from which to make hydrogen.

Second, changes in EU policies must closely be analyzed with regard to their effects on hydrogen and fuel cell development. A case in point is the current taxation of hydrogen utilization in some member states which could deter the uptake of hydrogen-based technologies, especially if the taxation level becomes unreasonable relative to the comparative environmental credentials of hydrogen as a fuel. Furthermore, in a communication of January 2008, the Commission proposes to extend the ETS to all major energy emitters. A reformed ETS should push towards more investment in low GHG emitting technologies. Yet, the current proposals may also deter from investment in hydrogen technologies given that transitional hydrogen production from gas would be part of such a new ETS (and perhaps also chemical production), and would therefore be required to pay the full cost of its carbon emissions. Exemption would assist a transitional phase, but needs to be linked to the ramp-up of zero carbon hydrogen production so that hydrogen production is not seen to enjoy “unfair advantage” beyond a managed transition period.

Third, the EU lacks competences necessary to reach its ambitious energy policy goals. The Treaty of Lisbon would confer the EU level stronger legal competences in the field of energy. However, other matters of relevance for energy and climate change policy will remain at national level such as taxation. Stronger coordination of national policies is therefore needed; stronger competences at the EU level e.g. on energy security and energy distribution is an option that ought to be considered.

Fourth, the overall policy framework must be aligned with the challenges ahead. Otherwise, different policies might neutralize each other. Improvements in EE and the liberalisation of the electricity and gas markets may for instance reduce the share of energy expenses in household or firm budgets. Such a development may lead to higher energy consumption which can over compensate for the initial gains in EE (‘rebound effect’). Hence, not only a coherent policy framework is needed but also a clear link between the energy objectives of GHG reduction targets, deployment and roadmaps on the one hand and instruments on the other. Coherency thus is not only a matter of today’s policy but a matter of long-term dynamic development in the EU.

Improvements in EE could be accompanied by higher energy prices so that the incentives to save energy remain stable. This might be done through the ETS or an ecological tax reform (tax escalator system) like the one proposed by Ernst Ulrich von Weizsäcker. A reliable system which ensures that increases in resource and energy efficiency are accompanied by increases in resource and energy prices would set incentives for investments in new technologies and new infrastructures. The payback times for those investments can stretch over several decades (Weizsäcker 2007). Without clear and reliable long term signals, the breakthrough of disruptive technologies such as hydrogen and fuel cell technologies is potentially jeopardised.

The following proposals are key elements for a policy framework for hydrogen and fuel cell promotion:

1. Develop long term GHG reduction targets in line with other EU energy objectives and the hydrogen deployment strategy at EU level.

2. Maintain taxation on energy with a view to internalize externalities while revising taxation on hydrogen.

3. Incentives to comply with the targets (proposal 1) should be market based. Instruments may be combined:

5. Permits for early adopters / purchasers of hydrogen vehicles

6. Dynamic standard setting and visible label (and monitoring) of full life cycle carbon missions for energy-intensive products including vehicles

7. A Pan-European network of agencies for energy efficiency to coordinate efforts (analogy to European Energy Regulatory Agencies)

8. Financing SMEs in the hydrogen and fuel cell area via a European Risk and Trust Fund (see also Competitiveness and Innovation Programme (CIP) 2007-2013).

9. Regional funding: cluster policy (as described in the next section)