A fossil-free economy

Traditional energy companies conduct a gradually rising amount of activities in clean energy domains. Worldwide, policies are being adopted to encourage development of renewable energy technologies. Iceland, a small country of only over 300000 inhabitants and with abundant natural energy resources, provides specific conditions for prototype of future fossil-free economy concept.

Island country with abundant natural energy resources (dominated by geothermal and hydro power) believes those can be employed to produce cheap hydrogen and power the transportation industry. In that sense, Iceland aims to establish itself as a fossil-free, hydrogen economy by the years of 2030-2040. In my paper, I will look at the issues of rapid transition between two technological paradigms – from oil powered to hydrogen fuel cells powered transportation systems.

I will consider the investment necessary and further implications on the economy itself and the consumers from within the economy – either directly buying products and services of transportation industry, and consumers in general, as transportation industry causes impacts throughout other industries. I will try to identify the bearers of the cost implied by the transition. I will do this by analysis of changes required at the infrastructural level and actual vehicular transition.

Transition to hydrogen powered transport requires new infrastructure of hydrogen production, distribution and storage to be in place and all mentioned types of vehicles be (gradually) exchanged. Both, traditional oil, and new, hydrogen, systems will need to coexist for the period of transition. Iceland aims to reduce this period to a shorter time than other countries may experience, however, the relative comparison between Iceland and the rest of the world at the time of full adoption (2030-2040) of oil-as-fuel-replacing technologies may not be of extensive contrast.

Still though, if the country sets on the way of pursuing speedy transition (via policies, legislation, investment subsidies for related technologies and development, driving the public opinions), in the earlier years it will not enjoy fully the economies of scale of wider adoption on world-wide scale and miss on the chance to benefit (technologically and economically) from the competition between traditional and new technologies. Such gaps would be compensated for by further subsidies or higher-than-global market price of transport, and generally goods and life, in which the higher transportation cost would reflect.

Application of hydrogen systems Application of hydrogen fuel cells in practice today is limited by their high cost, the costs of hydrogen production, and, naturally, lack of infrastructure. The main drivers of cost reduction in coming years will be development encouraged by likely continuous hike of oil prices and government policies pursuing greener energies. Those effects will be curbed by counter-effort pushing full exploitation of existing technologies (and by oil lobbies). Figure: 50 kW engine costs progression (Chalk, Miller)

Using today's clean technologies, the cost of delivering 1kg of hydrogen at the pump stands prohibitively high at minimum $7/i?? 4. 5, depending on production technology (Haman, Stiever, 2007). Power derived from 1 kg of hydrogen roughly compares with power carried by 1 gallon of regular gasoline, which means the hydrogen cost at pump needs to be squeezed to about a third of the current level to become competitive (Rajeshwar, McConnell, Licht, 2008). Figure: Hydrogen cost at the pump (produced by clean electricity) Iceland relies on cheap electricity to provide for cheap hydrogen production.

In this sense, the island country has a unique position in the world. For the world to cope with these issues, major developments in harnessing renewable energy will be necessary. Hydrogen infrastructure – production, distribution and storage To cover the roughly 1600 km route around Iceland (majority of towns and inhabited areas are along the coast) minimum of 20 refilling stations will be required. The advantage of hydrogen is that it can be produced at the pump site. Also, technologies are in development which will enable home production and refilling stations.

However, hydrogen infrastructure needs to be highly pressurized, requiring costly energy intensive and reliable distribution systems. Though, Iceland due to its size and early devotion encourages investments of first mover companies as a prototype economy.

On the other hand, hydrogen economy feasibility research estimates the infrastructure costs (of lean hydrogen system, just suitable to effectively cover the needs of motorists, roughly 20% density of oil infrastructure) to be comparable to the maintenance costs of current oil distribution systems.(illustrated in a study of conditions in the USA (conducted by GM2) which estimates, that a US wide hydrogen infrastructure to support 1 million hydrogen powered vehicles and placing a hydrogen fueling pump within 2 miles of the homes of 70% of the US population as well as every 25 miles on the interstate highways connecting the 100 largest cities, would cost between $10 billion and $15 billion (Lipman, Kammen, Ogden, Sperling, 2004). Other studies show that oil industry in the US spends at least $11 billion a year just to maintain its service station fleet (Rose, 2005).

Pursuing infrastructure development within Icelandic small scale and under the circumstances given may thus be possible without major government investments by application of suitable policy mix and environment encouraging foreign investment. Iceland's transportation industry consumed almost 200 million litres of gasoline in 2000 (Energy and resources Iceland, 2000), which has risen since. The hydrogen equivalent of 2000 gasoline volume consumed would require supply of roughly 70000 tons to be produced a year. Between 700-900 MW source of electric power would need to be employed in order to produce that volume of hydrogen.

That is almost 50% more than the amount provided by existing geothermal power plants today (Calculations based on Thompson, McConnell, Mosleh, 2005). Producing necessary amount of electricity to power transport industry will likely be one of major challenges of hydrogen economy. The capacity, however, exists as today only between 20%-25% of the technically and environmentally feasible hydropower (under 2000 MW employed) and conventional geothermal power (under 600 MW employed today) is harnessed in Iceland (Iceland energy authority, 2006 and 2007).

Related projects will encourage inflow of foreign capital and add up to the economic growth and well being of inhabitants. Powering transportation with locally made electricity would accumulate wealth at home instead of financial outflows to foreign suppliers (of oil). Economic growth related to technological and knowledge intensive industries may lead to improved competitive position of Icelandic economy, impact the living standards of inhabitants and employment conditions in a positive sense. Barring the cost of early transition

In period of transition between technological paradigms, there is usually a period of coexistence of evolving and established technologies, when the new technology strives to become competitive and efficient while the established technology is pushed 'to its limits' and to 'buy more time'. We can anticipate that at the time of Iceland's intended early transition to a fossil-free economy the adoption of clean transportation systems will likely not yet be fully accomplished globally, due to probable technological and market reasons.