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Observations on European policies

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

• 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. Since this is under responsibility of member states, the EU could 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.
• Changes in EU policies must closely be analyzed with regard to their effects on hydrogen and fuel cell development. Examples include Taxation of Hydrogen as a fuel in some member states, and the impact of Emissions Trading Schemes - exemptions would assist a transitional phase, but need 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.
• The EU lacks competences necessary to reach its ambitious energy policy goals - the Treaty of Lisbon would give the EU level stronger legal competences in the field of energy, but 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.
• The overall policy framework must be aligned with the challenges ahead - otherwise, different policies might neutralize each other, for example improvements in energy efficiency and the liberalisation of the electricity and gas markets may for instance reduce the share of energy expenses in household or corporate budgets, leading in turn to higher energy consumption (because it is affordable) - 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.

The following are key elements for a potential policy framework for Fuel Cell and Hydrogen promotion:

• Develop long term GHG reduction targets in line with other EU energy objectives and the hydrogen deployment strategy at EU level
• Maintain taxation on energy with a view to internalize externalities, while revising taxation on Hydrogen consistent with the “supply greening” issue described above
• Incentives to comply with the targets of the first point above can be market based - instruments may be combined:
  • Feed-in systems for producers of Fuel Cells and Hydrogen
  • Permits for early adopters / purchasers of Hydrogen vehicles
  • Dynamic standard setting and visible label (and monitoring) of full life cycle carbon emissions for energy-intensive products including vehicles
• A Pan-European network of agencies for energy efficiency to coordinate efforts (analogy to European Energy Regulatory Agencies)
• Financing SMEs in the Fuel Cell and Hydrogen area (as described above)
• Regional funding: cluster policy (as described in the next sections)

Regional Policy

Policies for promoting regional industrial clusters have, in recent years, been adopted by many regional authorities in Europe, as well as by Member States and the European Commission. Successful policies for the promotion of clusters should be based on measures tailored to the specific needs of a particular region. However, some general elements can be identified:

• Support to formulating a vision and strategic aim amongst stakeholders (private companies, research institutes, consumer groups, etc.), which are likely to be interested in the development of a cluster
• Catalytic role: Promotion of networks among companies, research institutes and regionally based interest groupings, with the aim of multiplying the number of collaborations between different organizations within the same community, while also embracing external linkages and access for new entrants
• Public procurement policies for stimulation of regional markets and brands for innovative products
• Facilitation of administrative procedures, by reducing the administrative burden on innovation activities, in order to facilitate their implementation
• Establishment of regional research and innovation centres on sustainable energy (including fuel cells and hydrogen) with the aim of speeding up the transfer from academia to demonstration and implementation as well as developing research driven clusters of global excellence
• Support advocacy coalitions that can strengthen the social acceptance of the technology (legitimacy) e.g. through demonstrating new applications
• Facilitation of access to financing and giving seed money

Modern cluster policies also emphasize the need for a good coordination of policies at both EU, national and regional levels, since they foster joint action between different stakeholders.

Both cluster analysis and policy analysis suggests not to favour certain technology choices (“picking out the winners”) - the range of feasible applications and attractive technologies will become wider the more the technology advances. In fact, variety should be seen as desirable since it increases competition as well as technological and business options.

European policy and the cooperation of Regions

Based on information and feedback received so far it is very likely that there will be a variety of different regional strategies in Europe. The European level should hereby play a coordinating and enabling role:

• The EU should ensure the guidance of the innovation process by setting goals and developing visions that can legitimize and empower coalitions strong enough to threaten incumbent technologies. Such guidance should be developed in cooperation with a range of public, private and non governmental organizations to ensure consensus and create visibility and acceptance of the course
• The EU should use its coordinating role to try to ensure that the different technological options are fully covered in one or more regions - Given the unpredictability of future technological and market developments, Europe has an interest in being well positioned in different emerging markets
• The EU should harmonize regulatory processes, standards and certification processes not only for production and product-related applications but also for infrastructure and distribution (e.g. fuelling stations); furthermore, it should ensure that Member States apply the mutual recognition principle, which “guarantees free movement of goods and services without the need to harmonise Member States' national legislation”
• 'Pioneering regional clusters should exchange information, best practices and group together for certain activities such as joint procurement

The grouping and cooperation of regions at EU level (such as in HyRaMP) is of great importance, as once regions have grouped together they can gradually become more and more interconnected. Thus common action can yield manifold benefits:

• Joint procurement: a group of regions can purchase certain products together; the supplier may thus realize economies of scale whereas the regional purchasers will get a lower price for the demanded product
• Producer-user networks: If a producer supplies a relatively great number of regions with the same product, they will benefit from the feedback of users in different communities and geographical settings, while the regional users of the product can also benefit from such a network for they can exchange information on how to best deal with technical problems or combine the product with other applications
• Interconnected infrastructure: Regions and emerging Community projects will have an interest in connecting their hydrogen infrastructure with those of other regions nearby. As the number of fuelling station and the length of pipelines grow, the geographic range of vehicles will increase and the supply of hydrogen will be diversified. The more these early adopting communities become interconnected, the more applications as such will become attractive

Besides its role as coordinator, the European Union can also play the role of a financial facilitator. Alongside the Framework instruments that are well known to Technology developers, and the EIB finance schemes described above, it will in due course become of great importance to geographically enlarge the hydrogen infrastructure in Europe, in particular in view of facilitating the uptake of hydrogen as a fuel in road transport. The EU may therefore set up a programme designed as private public partnership to connect regional networks such as the emerging Scandinavian one – the appropriate timeframe for action possibly being towards the end of the just started Joint Technology Initiative. The EU funding for the partnership could for example partly be covered by the Trans-European-Transport-Networks (TEN-T) budget as well as by structural funds.

Specific policies to incentivise uptake

Because of the sustainability dimension, public policy is legitimate to foster such cluster development and to stimulate lead markets. In considering this dimension, linkage needs to be made to the long-term “greening” of the hydrogen supply (because current manufacture of hydrogen, like electricity, gives rise to GHG and other emissions at the point of production), but provided that support policy is clearly linked to the greening of hydrogen as a fuel, effective mechanisms could include, e.g. via:

• Congestion charges and zero emission zones: The introduction of a congestion charge in London shows that this can well be done at community level. If low or zero emission vehicles are granted privileged access to cities, the overall effect will be favourable for uptake in the community
• Parking lot management: Zero or low carbon emitting vehicles could be granted free access to parking lots - This is also a measure which can be implemented at regional level
• Tax exemptions: Hydrogen producers could be granted exemptions from energy taxes, which would improve the relative cost competitiveness of hydrogen relative to fossil fuels
• Housing policies: Fuel cells for stationary use can be supported by national or regional housing policies, e.g. via information campaigns, financial support or tax exemptions for energy efficient products
• Public purchasing: Public administrations can choose to purchase “green” products to support their market development
• RTD funds for sustainable energy: These funds could partly be financed through energy taxation revenues or carbon permit auctioning - Examples for such funds can already be found at regional level e.g. in Hanover

After the completion of the just-starting Joint Technology Initiative, which has a life of ten years, regional/civic initiatives and community projects will have to “find their own ways” towards commercialisation. In this respect, regional infrastructure and cluster policy, and access to suitable finance, will be of paramount importance. Further ongoing research is, however, needed to learn more about the regional dimension and to better prepare and support European regions on their way towards the realisation of Fuel Cells and Hydrogen in a sustainable energy economy.