Arnold Kling  

Synthetic Fuels Program

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About a year ago, Paul Romer pointed out that

In the next century we’re going to be moving back and forth, experimenting with where to draw the line between institutions of science and institutions of the market.

In this context, there has been considerable criticism of President Bush's proposal to spend $1.2 billion on hydrogen fuel cells.
Paul Georgia says that the technology is over-hyped.

Since hydrogen does not exist in geological reservoirs it must be extracted from fossil-fuel feedstocks or water. The process of extracting hydrogen uses energy, which means that using hydrogen is less efficient that burning fossil fuels...

The other option is to extract hydrogen from water using renewable-energy the time you use the energy to extract hydrogen from water, transport that hydrogen to where car owners can get to it and then recombine it with oxygen to re-extract the energy the cost becomes astronomical.

If hydrogen power is economical, then theWall Street Journal editorializes (subscription required) that

[this is] all the more reason taxpayers shouldn't be forking more over to the effort. Granted, there are areas where government research funding serves a purpose -- particularly in fields where there is little or no commercial market to drive development. But private companies clearly think they stand a chance to make money from fuel cells; if a market exists, they'll find it, without Washington throwing money at them.

Lynne Kiesling weighs in

Such technology subsidies, particularly to get renewable energy technologies to the point where they are commercially viable, overlook an important point: the fact that these technologies are not commercially viable may mean that they are not economically efficient. If entrepreneurs and investors do not think that these forward-looking investments make economic sense, then for the government to override this decision with subsidies is almost certain to be wasteful and more costly than need be.

Comments and Sharing

COMMENTS (5 to date)
Bernard Yomtov writes:

I have no expertise as to the technical aspects of hydrogen power. But let's assume it can be successful. Then it will have huge positive externalities - reducing pollution, reducing the political clout of some very unpleasant governments. Doesn't that justify some government subsidy?

Arnold Kling writes:

You should read something I wrote called Oil Econ 101:

But the short answer is that if you want to reduce pollution, you should tax pollution and then let the market figure out the right mix of conservation, alternative fuels, and pollution controls. If you want the Saudis to stop funding terrorism, you have to tell them to stop funding terrorism. Trying to make a statement in the oil market is futile.

Gene 6-Pack writes:

Anyone who has fooled with hydrogen piping knows that hydrogen leaks from pipes and fittings that will hold gas or air pressure. Gonna be a whole lot of garages blow up when the hydrogen car arrives.

Bernard Yomtov writes:

Well, taxing pollution is all very nice, but we're not going to do it, in part because the "free-market" champions wouldn't allow it. You can almost hear the sneering at the notion of making people pay "social costs."

Can you even imagine that the current administration would do this? What do you think would be the reaction of Fox, WSJ, Rush and the dittoheads to this idea? Didn't someone (Carter?) propose a stiff increase in the gasoline tax at one point? The reaction was not favorable, as I recall.

As far as getting the Saudis to stop funding terrorism, I do rather suspect that asking them politely, or even a little rudely, has been tried, without conspicuous success.

Finally, I understand that we can't just declare ourselves "independent" of Saudi oil, or Iraqi, etc. But reducing our demand for oil reduces both the price of oil and the quantity sold, reducing revenue flowing to the Middle East and constraining the power of those countries. Your article attacks a straw man by claiming that we cannot completely stop buying oil from the Saudis. Of course not, but we can cut into their revenues, and that will have effects.

Jim Glass writes:

Christopher Caldwell had a nice article on the politics of this at
From which...
The most important item in President Bush’s State of the Union speech last week (aside, of course, from his de facto declaration of war on Iraq) may have been his announcement of a $1.2 billion pilot research program for developing hydrogen-powered cars.

That is because it makes no sense. Either it’s nothing -– what Sen. Daniel Patrick Moynihan used to call "boob-bait" for environmentalists -– or it is an initiative of epoch-making importance. If all cars are going to be hydrogen-powered two decades from now (and that is the timetable Bush hinted at), then the country that develops them will be the world’s transportation powerhouse.

You have to ask why China hasn’t decided to do the same thing. In fact, if the price tag for leadership in the Car Market of Tomorrow is a mere $1.2 billion, then Greece and Uruguay could enter the competition as well...

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