Full Committee Hearing- Hydrogen

The purpose of the hearing is to receive testimony relating to implementation of the Energy Policy Act of 2005 provisions on hydrogen and fuel cell research and development.

Archived Webcast

If you are having trouble viewing this hearing, please try the following steps:

Clear your browser's cache - Guide to clearing browser cache
Close and re-open your browser
If the above two steps do not help, please try another browser. Internet Explorer or Microsoft Edge have the highest level of compatibility with our player.

Witness Panel 1

The Honorable David Garman

Undersecretary of Energy

U.S. Department of Energy

Read statement

Witness Panel 1

The Honorable David Garman

STATEMENT OF DAVID GARMAN

UNDER SECRETARY OF ENERGY

BEFORE THE

COMMITTEE ON ENERGY AND NATURAL RESOURCES

UNITED STATES SENATE

JULY 17, 2006

Mr. Chairman and Members of the Committee, I appreciate the opportunity to testify on the President’s Hydrogen Fuel Initiative. My focus today will be on the provisions of the Energy Policy Act of 2005 (EPACT 2005) which are related to hydrogen and fuel cell technologies, the Department of Energy’s activities to support both EPACT 2005 and the President’s Initiative, the progress we have made, the challenges we face, and how we intend to overcome those challenges to enable a hydrogen economy.

Hydrogen is an important part of our Nation’s strategy for long-term energy and environmental security because it can be made from a variety of domestic resources and, as a transportation fuel, it can result in zero criteria pollutant or carbon emissions from vehicle tailpipes.

Launched in 2003, the President’s Hydrogen Fuel Initiative commits $1.2 billion over five years to accelerate the research, development, and demonstration of hydrogen and fuel cell technologies.[1] These technologies may ultimately shift our primary transportation fuel from petroleum, which is increasingly imported, to hydrogen, which can be produced using a wide variety of domestic feedstocks. The development and widespread use of hydrogen can contribute to an abundant, reliable, and affordable supply of clean energy to maintain our Nation’s prosperity through the 21st century and beyond.

More than three years after he announced the Initiative, the President’s commitment to hydrogen continues to be strong; the $289 million request before Congress reflects a tripling of the budget compared to pre-Initiative levels, and it directly supports the President’s Advanced Energy Initiative goal to help break our Nation’s dependence on foreign energy sources and our addiction to oil.[2]

The Department of Energy Hydrogen Program supports the President’s vision. Our research focuses on pathways to produce and deliver hydrogen from diverse and domestic, fossil, nuclear, and renewable resources while also developing fuel cell technologies that can significantly decrease vehicle greenhouse gas emissions compared to today’s vehicles. At the highest level, our program goals and targets are set to ensure that hydrogen fuel cell technologies will be competitive with the projected performance and cost of vehicles and fuels in the United States. For example, our hydrogen cost target of $2.00-3.00 per gallon gasoline equivalent, untaxed, ties directly to Energy Information Administration gasoline price projections. This would enable the cost of hydrogen at the pump to be equivalent on a cost-per-mile basis to the estimated cost of operating vehicles on gasoline. Similarly, the cost of an automotive fuel cell system must be competitive with the cost of an internal combustion engine drivetrain - $30/kW.

We commend this Committee and the Congress for its strong support of the Hydrogen Program, as demonstrated in Title VIII of the Energy Policy Act of 2005. Title VIII includes requirements that very clearly align with our plans to research, develop, validate, and demonstrate hydrogen technologies. It also includes important provisions, which we have implemented, for coordinating across the Federal Government and for obtaining independent advice on our hydrogen efforts from outside the Department. I am pleased to report that the Interagency Hydrogen and Fuel Cell Technical Task Force meets monthly, and, as you may already know, Secretary Bodman announced the selected members of the Hydrogen Technical Advisory Committee just a few weeks ago, on June 20.

The Department has already received critical independent advice in two reviews of the National Academies. In a report of the latest review released last summer, they recognized our effort as being well-planned3, and the review committee chair stated that the program “is making significant headway” and “it could have an enormous beneficial impact on energy security and the U.S. economy.” Our next review by the National Academies is planned for early (calendar year) 2007.

EPACT 2005 requires a number of studies and reports to determine the impact of hydrogen and fuel cell technology deployment. A report mandated under section 1812 of EPACT 2005, the Solar and Wind Technologies for Hydrogen Production Report to Congress, published in December 2005, provides information on solar and wind hydrogen projects and recommendations for promoting the availability of solar and wind technologies for production of hydrogen. Section 804 of EPACT 2005 mandates submission of a coordinated five-year plan for the programs authorized under Title VIII. This report is currently under review and will be submitted to Congress shortly.

Over the next year, the Department will focus on completing other hydrogen-related reports required under EPACT 2005. In section 1819, the Department is required to submit a report evaluating the methodologies used to establish goals and milestones for the Hydrogen Program. By February 2007, the Department will report on a study, required in section 1820 of EPACT 2005, of the likely effects of a transition to a hydrogen economy on overall employment in the U.S. The Department issued a competitive solicitation and recently made an award for the completion of this study. The Department will utilize the expertise of the National Academies to complete a study required by section 1825 to provide a budget roadmap for the development of fuel cell technologies and a transition from petroleum to hydrogen in a significant percentage of the vehicle fleet.

We have made notable progress in the three years since the start of the President’s Hydrogen Fuel Initiative. Our research has reduced the high-volume cost of automotive fuel cells from $275 per kilowatt in 2002 to $110 per kilowatt in 2005.4 DOE-funded research has also doubled the lifetime of the automotive fuel cell stack. We’re not at the

3 National Academies of Science. “‘Clean’ Vehicle Research Initiative on Track, But Many Challenges

Ahead.” 2 Aug. 2005. Available on the Web at

<http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=11406>.

4 Cost Analysis of PEM Fuel Cell Systems for Transportation, September 30, 2005, Carlson, E.J., et.al.,

Tiax, LLC

end-point yet, however. Further research is required to meet our ultimate cost target of $30 per kilowatt and our durability target of 5,000 hours, which is equivalent to the vehicle lifetime that drivers expect today. In FY 2007, the Department will initiate new projects in several areas, including improved fuel cell membranes, cold-weather start-up and operation, advanced cathode catalysts and supports, innovative concepts, and the effects of impurities on fuel cells. Through our investment in these competitively awarded projects, we expect to make even greater progress in improving fuel cell performance and durability and lowering cost, moving closer toward achieving those ultimate technical targets.

Developing storage technology to carry hydrogen on-board, while still meeting vehicle performance and cost requirements, is one of the most technically-challenging barriers we face. To address the critical need for improved on-board hydrogen storage, the Department has developed a diverse portfolio through three Centers of Excellence and independent projects in both applied and basic science. Together, these efforts tap into vast technical expertise at about 40 universities, 15 companies, and 10 Federal laboratories.

These projects are beginning to produce promising results, with innovative materials being developed in different areas such as metal hydrides, chemical hydrides, and carbonbased materials. Some of these materials can store 6- to even 9-percent by weight of hydrogen, our 2010 and 2015 targets, respectively. This is significant progress, up from a maximum of 5.5 weight percent a year ago. The next step is to tailor these materials to store and release hydrogen under practical temperature and pressure conditions.

Further research on materials and systems engineering is required to meet our hydrogen storage system target to provide consumers with a 300-mile driving range. To help ensure we can meet this aggressive goal, the Department’s basic research is carefully coordinated with our applied research in materials development for hydrogen storage.

We are also analyzing transition scenarios on how the Nation might initiate early hydrogen production and delivery infrastructure development as vehicle market penetration ramps up, and we plan to submit a transition analysis report to the National Academies in March of 2007. We are pursuing “distributed” options for reforming renewable fuels, such as ethanol, as well as natural gas, to produce hydrogen on-site at the fueling station. This distributed scenario can also be used for on-site electrolyzers that use electricity to split water into hydrogen and oxygen. These methods provide an alternative to large infrastructure investments in a hydrogen delivery system before there are large numbers of hydrogen vehicles on the road.

In terms of hydrogen production, we have already been successful in reducing the cost of producing hydrogen from natural gas – from $5.00/gallon gasoline equivalent (gge) to approximately $3.00/gge today. This status for cost is currently being verified by an independent panel that will release its results later this summer.

We fully recognize that producing hydrogen from natural gas is not a strategy for the long term. All four Department offices that comprise the Hydrogen Program – Energy Efficiency and Renewable Energy, Nuclear Energy, Fossil Energy, and Science –are working together to pursue revolutionary approaches to hydrogen production. For example, heat from nuclear reactors or solar energy can be used to split water into hydrogen and oxygen, with no carbon or criteria emissions. In our nuclear-based hydrogen program, we plan to complete the assembly and preliminary testing of a laboratory system using nuclear heat to drive thermochemical cycles that split water to produce hydrogen. In another approach using nuclear energy, we will demonstrate hydrogen production from a high temperature electrolysis system that is more efficient than the electrolyzers used today.

By 2010, the Department anticipates completing integrated laboratory-scale experiments of thermochemical cycles and high-temperature electrolysis technologies for producing hydrogen with nuclear energy to confirm technical feasibility of the closed loop processes. Results of these experiments will inform the selection of the high-temperature hydrogen production technology required by EPACT 2005 by the end of FY 2011. For the process or processes selected for further development, design activities will be initiated by 2011 for pilot-scale experiments at higher power levels to evaluate scalability of the processes for eventual commercial use.

Also, in a separate activity in support of EPACT 2005, the Department has received industry proposals to conduct a feasibility study of how to produce hydrogen using smallscale equipment at existing nuclear reactors. If the Department selects any of the proposals, it will partner with industry for up to three years to examine the economics of producing hydrogen at an existing reactor, the environmental effects, and the regulatory requirements.

Other high-risk, high pay-off production approaches also involve harnessing the huge potential resource of solar energy. Through a collaboration of our basic and applied research programs, we are developing “photobiological” hydrogen production technology that uses micro-organisms to produce hydrogen and “photoelectrochemical” hydrogen production technology, in which solid state devices convert photon energy into hydrogen. These approaches may be up to 25 years away from maturity but offer great promise for fully sustainable hydrogen fuel production without environmental impact.

In our coal-based hydrogen program, we plan to scale up membrane reactors for separating carbon dioxide and hydrogen gas streams for zero emission fuel cell vehicles and pollution-free power production. This research is closely coordinated with our FutureGen effort to create the world’s first coal-based near-zero atmospheric emissions power plant to produce electricity and hydrogen, incorporating clean coal and carbon sequestration technologies.

We are also demonstrating hydrogen technology in vehicles that are on the road today. Through “50-50” cost-shared partnerships with the automotive and energy industries, four teams are installing hydrogen refueling stations and putting fuel cell vehicles on the road to test the technology as integrated systems in real-world conditions. Through this “National Hydrogen Learning Demonstration,” we are collecting data on vehicle performance, durability, and fuel economy and feeding it back into our research program to ensure that we remain focused on the most relevant problems. Consistent with the President’s Management Agenda, the results we plan to report later this year will provide a transparent “risk assessment” that allows Congress and taxpayers to evaluate progress toward meeting our established performance-based goals.

As mentioned, hydrogen is critical to our Nation’s strategy for long-term energy and environmental security. Developing hydrogen technologies that can be manufactured domestically should improve our economic competitiveness as well. Our manufacturing research and development effort is new in FY 2007 and will address the need for highvolume manufacturing processes for components such as those used in fuel cells that are currently hand-built. These processes are important to lowering the costs of fuel cells and developing a domestic supplier base. Establishing an early supply base for fuel cell applications such as portable, stationary, remote, and emergency back-up power also lays critical groundwork for the much larger supply chains needed for automotive applications. In January, Secretary Bodman released for public comment a draft roadmap on manufacturing research for the hydrogen economy. This roadmap is being finalized and will be the foundation for executing this important research.

Finally, since the Hydrogen Fuel Initiative was unveiled in 2003, investments have been made not only at the Federal level but also at the state and local levels. From Aiken, South Carolina, to Golden, Colorado, to Sacramento, California, hydrogen research facilities and infrastructure investments have demonstrated a long-term commitment to hydrogen and the beginnings of the hydrogen economy. These diverse investments increase our probability of success in solving technology barriers and in enabling industry to not only make fuel cell vehicles that consumers will want to buy, but also invest in hydrogen refueling infrastructure that is profitable and addresses the root cause of foreign oil dependence and greenhouse gas emissions.

This concludes my testimony, and I would be pleased to respond to any questions you may have.

[1] Office of the President. “Hydrogen Fuel: A Clean and Secure Energy Future.” 30 Jan. 2003. Available on the Web at <http://www.whitehouse.gov/news/releases/2003/01/20030130-20.html>.

[2] Bush, George W. “2006 State of the Union Address.” Capitol, Washington. 28 Jan. 2003. Available on the Web at <http://www.whitehouse.gov/stateoftheunion/2006/>.

Witness Panel 2

Dr. Donald Paul

Vice President and Chief Techonology Officer

Chevron Corporation

Read statement

Witness Panel 2

Dr. Donald Paul

Dr. Donald L. Paul

Vice President and Chief Technology Officer

before the

Senate Energy and Natural Resources Committee

"The Hydrogen Energy Economy"

July 17,2006

Mr. Chairman and Members of the Senate Energy Committee:

Chevron is pleased to have the opportunity to testify before the Senate Energy and Natural Resources Committee on the future of hydrogen as a transportation fbel as well as DOE 's hydrogen program and the impact of the Energy Policy Act (EPACT) in advancing hydrogen as a fuel.

As Chevron's Chief Technology Officer, I oversee all facets of our company's new energy technology development and commercialization, including hydrogen generation and hydrogen infrastructure, and can share our experience as well as our views regarding the critical steps required in the development of this technology.

By way of background, Chevron is an integrated, global energy company that produces oil, natural gas, transportation fuels and other energy products. We operate in 180 countries and employ more than 53,000 people world-wide. Chevron is the second-largest U.S.-based energy company and the fifth largest in the world, based on market capitalization. We are also involved in a wide-range of advanced clean energy and fuel technologies.

Chevron is committed to diversifying our nation's fbel supply. Although there is no "silver bullet", we are actively pursuing new energy and fuel sources including biofbels, gas to liquids and hydrogen to name just a few. As Chevron's Chairman and CEO David J. O'Reilly, has discussed on numerous occasions, including at a speech over two years ago at the U. S. Chamber of Commerce here in Washington, D.C., we are facing a new energy equation as the world's demand for energy grows. I believe that we are going to need every form of energy, we must develop new types of energy, and we must increase energy efficiency and conservation. We at Chevron are committed to providing U. S. citizens reliable and affordable supplies of energy.

Before discussing Chevron's extensive and innovative work in the hydrogen infrastructure area over the past 5 years, I would like to briefly mention that just over a month ago Chevron announced the formation of a new biofbels business unit to specifically pursue opportunities for supply of biofbels, and development of cellulosic ethanol. We have biofbel projects underway, including investing in development of a large scale biodiesel plant in Galveston, Texas and an E-85 demonstration project in California.

In terms of hydrogen fuel, we believe that fbel-cell technology and related infrastructure technology will continue to evolve. In current use are stationary fuel cells which generate high reliability and quality power and are commercially available today. Chevron has installed two stationary fuel cells at our facilities in San Ramon, California, and Houston, Texas. These fbel cells convert hydrogen from natural gas into electricity, clean water and usable heat, and provide secure, digital-grade power to select data systems and laboratories. We undertook these projects to gain experience with designing and installing stationary fuel-cell systems, and to help us translate this experience into other types of fuel cell projects. Our subsidiary, Chevron Energy Solutions, has installed fuel cells in many facilities, including at US Postal facilities.

In addition to stationary power, we believe that hydrogen may provide a viable transportation fuel under certain conditions in the nearer term, such as for transit systems, while future widespread use for passenger vehicles will be dependent on resolving technological and economic challenges. We believe that central vehicle fleets and transit systems are the most practical means of using hydrogen in the near future in addressing both infrastructure as well as vehicle challenges. Fleets, such as buses, use a centralized fueling point and hydrogen storage can be overcome by vehicle size. Although hydrogen has many positive attributes as a transportation fuel, as I will discuss, there are still some major challenges that must be overcome before hydrogen will be an integral component of the fuel mix. We are still very much in the learning and demonstration mode.

CHEVRON'S RESEARCH AND DEVELOPMENT INITIATIVES

Chevron has been a leader in researching and demonstrating the potential for using hydrogen as a transportation fuel, including using proprietary reforming technology developed at our labs to generate hydrogen on-site. We are the only major energy company leading projects under DOE's "Controlled Hydrogen Fleet and Infrastructure Demonstration and Validation Program" with our auto partner, Hyundai and fuel cell partner, UTC. This demonstration program is a unique five-year cost-share program in which autos and energy company partners develop demonstration sites, test vehicles and infrastructure, and share information in coordination with the DOE. Currently participating are all three major U.S. auto companies and Hyundai, three major energy companies and a number of fuel cell companies and other related businesses, many of whom are smaller, new technology suppliers.

We believe that this demonstration program is the centerpiece of DOE's hydrogen program, and is critical to advancing hydrogen as a practical transportation fuel. Often times, we see the infrastructure part of the energy equation being ignored or forgotten entirely. Our current infrastructure for fuels took over 100 years to fully develop - and given the complexities, it is absolutely critical that both the fuel cell vehicles and the hydrogen infrastructure be developed simultaneously. In Title VIII of EPACT, there is also a demonstration program included, and we believe that it needs to be complementary to the one now well underway for the past three years, rather than competitive and creating potential duplication. The Hydrogen Fleet and Infrastructure Demonstration program must be completed, results evaluated, and shared among all parties to better define a roadmap for the future.

Under the DOE's Hydrogen Fleet and Infrastructure Demonstration program, we currently have two demonstration projects in full operation in California and are planning two additional sites, including a cold weather site in Michigan in coordination with the Department of Defense. The first demonstration site opened in Chino, California, in February, 2005, at the Hyundai Research Center. We provided our on site reforming technology and hydrogen pumps for the station, and are testing three passenger vehicles. The second demonstration site is at the AC Transit Bus headquarters in Oakland, California, and again we installed reforming technology and pumps for three fuel cell buses that travel in daily operation throughout the city. The site will be expanded in the future to incorporate the next generation of reforming technology and provide increased hydrogen production. The benefit of this demonstration project is that it allows citizens to actually experience riding the buses and directly benefit from the technology. Our infrastructure portions of these projects are unique-- as I mentioned, we produce the hydrogen on-site, on-demand. We believe that decentralized production is a very important infrastructure pathway for a number of reasons - not only do you save transporting the hydrogen which is very difficult (unlike gasoline), but also it allows you to control how much is manufactured and stored for consumption when it is needed. In addition, having the hydrogen production on-site provides the potential for hydrogen to be supplied to power a stationary fuel cell.

We have learned many lessons from the demonstrations that we can share, and believe these could not have been learned had the DOE program only operated in laboratory and research settings. For example, our station systems are designed to run safely in an unattended remotely monitored production mode, (such as a fueling station would in the future), and therefore, the scope and sophistication of the technology we installed for the demonstrations is aligned with the path towards commercial reality. Another example is leak detection systems -- these are particularly important for hydrogen production and storage systems and our demonstration facilities employ state-of-the-art, industrial-grade systems. We are now beginning to understand both the detailed and broad engineering factors which must be incorporated to meet commercialization standards. This knowledge is being used for future system improvements, and to gain the cost efficiencies essential for eventual commercial implementation. Because this is a new fuel infrastructure, the supplier community is new, often comprised of smaller companies, and needs to be developed to industrial-scale standards and size. The demonstration program has been an essential mechanism in developing this community. At this point, we have also learned that site location is very important, and permitting can be challenging due to various levels of understanding by local officials. We understand the value of public consultation and education as part of developing a demonstration site and the need for this as the technology develops. Also we are familiar with how to build confidence with important stakeholders, such as our site host, fire marshal and vehicle operators, in using the technology.

CHALLENGES TO COMMERCIALIZATION PRODUCTION AND DISTRIBUTION OF HYDROGEN

Hydrogen must be available when and where it is will be needed. Hydrogen is a fuel - not a natural resource. It must be manufactured from other sources, so how the supply system is developed is critical. The two primary sources of hydrogen are water and hydrocarbons. For the past 50 years, Chevron and the industry have been engaged in the large-scale conversion of hydrocarbons to hydrogen through refinery and gasification processes. As you may be aware, oil refineries are the largest current producers and users of hydrogen. Additional industrial uses are for chemicals, metals, and electronics manufacturing. Approximately 9 million tons of hydrogen is produced for industrial applications in the United States (world-wide production is about 40 million tons). The core technical and business challenge is to transform and adapt the hydrogen production and distribution system to support a much broader energy supply system for transportation and distributed power. The hndamental properties of hydrogen create both opportunities (it can be made from a variety of sources) and challenges (distribution and storage).

In Chevron's hydrogen program, we are adapting long-standing core competencies and proprietary technologies in fuels, catalysis, and process engineering to explore the development of a new distributed fuel-processing and delivery infrastructure. The fundamental technolonv model relies on distributed, ondemand production of hydrogen, thereby materially reducing the costs and logistical barriers associated with large-scale transportation of hydrogen and significant onsite storage. Distribution and storage are the two primary cost components for hydrogen (as compared to production). It is important to note that this is essentially the opposite of gasoline, where production costs dominate distribution and storage. For the current generation of hydrogen infrastructure demonstrations, Chevron has concentrated on miniaturizing and distributing natural gas reforming and processing technology. This creates maximum use of the existing and extensive natural gas grid, resulting in dramatically reduced costs for the early stages of developing the infrastructure. Successful current R&D programs would allow for the extension of the small-scale reformer technology to utilize other light hydrocarbon feedstock as well.

STORAGE OF HYDROGEN

Storing hydrogen in the car, at the refueling station and throughout the delivery infrastructure is a significant critical path challenge. The nature of the storage problems vary by application and each deserve the attention of R&D and demonstration by industry, national labs and the DOE. While much attention is given to storing hydrogen on board the vehicles, and rightly so, similar attention is needed in the other critical locations in the hydrogen infrastructure. In particular, cost effective dynamic storage in moderate volume is essential at the production and fueling sites. Today, all hydrogen storage is essentially in high-pressure vessels, typically at 5,000 pounds per square inch. Even at these pressures, the energy stored is far lower than with typical liquid hydrocarbon fuels. Where space is not a pressing limitation, such as with our production sites or on large vehicles, such as busses, the current technology is functional, but expensive. For the evolution to light duty vehicles, most believe that cost effective solidstate storage will be required. This is an important focus area for R&D programs. The bottom line is that the development of the infrastructure for hydrogen as a he1 will require advancements across a full system including production, distribution, and storage.

NEW CODES AND STANDARDS NEED TO BE DEVELOPED THAT PERMIT THE DEVELOPMENT OF THE INFRASTRUCTURE

Existing building codes and hydrogen system design standards were not developed with consumer applications in mind. Today's codes provide large distance "setbacks" from other facilities that limit the locations where hydrogen can be manufactured, stored and dispensed. This was appropriate for hydrogen applications and applications of the 2oth century, but they make retrofits of existing sites with limited area for expansion impractical for future hydrogen facilities.

Codes and standards will need to be updated to reflect the developments in safer hydrogen technologies arising from the new storage and control system technologies. In some cases, building codes will need to be strengthened to ensure safe maintenance facilities. Through research and demonstration of hydrogen generation and storage technology we will be able to gain the necessary safety knowledge which will lead to data driven codes and standards that do not currently exist.

PATHWAY TO COMMERCIALIZATION

We at Chevron anticipate that, realistically, the hydrogen supply of the hture will have to be produced by a blend of energy sources -both hydrocarbons and renewable sources. This is the only scenario we can foresee that will enable hydrogen markets to emerge at scale, to adapt to diverse market structures, and allow hydrogen businesses to become profitable over the long term.

An avenue that leverages using the existing current infrastructure to produce hydrogen will be a critical step. We believe that using a distributed generation model will provide the most cost effective way to support the development of a fuel cell market. The technology to make this happen is small reformers and small electrolyzers. Providing consumers with this practical solution may help remove fuel availability as a near-term impediment to commercial adoption of fuel-cell vehicle systems. Greenhouse gas emissions are being reduced using current reforming technology to produce hydrogen, and, in the future, those emissions may be further reduced by adding renewable energy sources, such as solar or wind, to produce hydrogen through electrolysis.

In sum, to develop a commercial-scale infrastructure, the cost of using hydrogen to consumers needs to be competitive in the market with other energy fuels. Large scale deployment requires that energy suppliers be convinced that hydrogen can compete with other hels in the market. While there is reason for encouragement in special markets, broad commercial applicability has not been demonstrated. Participation by auto companies, energy companies, and communities in the development of demonstration fleets of fuel-cell cars and buses will be important to get the infrastructure started and to prove the value and functionality. Specialty applications and niche markets that use much of the same technology but in different products are going to be important and will be a signpost along the pathway. One opportunity in this area may be for use of the hydrogen and fuel cell technology by the military. In addition, applications, such as airport ground equipment vehicles and fleets of industrial vehicles with centralized and stationary refueling, need to be successful before consumers are likely to be a significant user of this technology.

PUBLIC POLICY RECOMMENDATIONS

To pursue commercialization of hydrogen infrastructure and fuel cell technology, we believe that there are several critical areas for policy action. We recommend the following:

1. Continue to Support DOES Hydrogen Fleet and Infrastructure Demonstration and Validation Program: It is absolutely critical that DOE work on the infrastructure issues simultaneously with fuel cell vehicle development and storage technology which is being done with these demonstration projects. Energy companies have a key role to play in the development of the fuel cell market and Chevron is committed to helping the U.S. market move towards safe and cost competitive solutions. This should be a high priority in terms of DOE and other government R&D support.

2. Fund Kev Basic Research: We believe that fundamental research must continue to be supported by Congress for this technology to move towards commercialization. Basic research performed by DOE national laboratories, the private sector, and academia will create the essential science and technology base needed for long-term, sustained advancement of hydrogen. We believe that the number one priority for this should be hydrogen storage. Without resolving the significant technology challenges, it will be very difficult to move forward on the large-scale implementation of hydrogen as a fuel.

3. Engage Private Industry In Commercialization: We believe that this will help make the technology commercial, and also focus government priorities on areas where there is the most need. Chevron has already significantly invested in R&D in the areas of hydrogen generation and storage. However, public - private sector partnerships are needed to provide the resources necessary to create conditions to allow commercialization of technologies that may not see economic returns for decades.

4. Public Education: When new technologies are on the horizon, there is a lot of fanfare and media attention surrounding the development of the technology. Unfortunately, this leads to unrealistic public expectations. As the hydrogen market evolves over the next few decades, technology breakthroughs will change the way hydrogen is made and supplied to the consumer. It is important that the public understand the market drivers, environmental benefits and cost benefits and challenges associated with each stage of the transition. The physical reality in the community provided by demonstration projects can uniquely educate the public.

5. Monitor Market Signals: Often we see that factors can change the need for a particular technology - either increasing or decreasing demand. Some of these factors may include competing technologies, availability of resources, and public opinion. We believe that this is addressed by EPACT in the roadmaps and studies required by the law. Periodic reviews will be necessary to assess progress, to steer or change policy as needed, and to implement appropriate mid-course corrections.

EPACT, for the first time, provides an authorized path forward for the hydrogen program which is very positive. It is appropriate that Congress oversee the DOE program and that public-private partnerships continue. We find that a partnership-based approach gives the most flexibility, delivers the best value for the dollars invested, and speeds the pace of technological innovation.

Thank you for the opportunity to testify and I would be happy to answer any questions.
J. Byron McCormick

Dr.

Read statement

Witness Panel 2

J. Byron McCormick

J. Byron McCormick, Ph.D.

Executive Director, Fuel Cells Activities

General Motors Corporation

Testimony before the U.S. Senate Committee on Energy and Natural Resources

Full Committee Hearing on Hydrogen

Dirksen Senate Office Building, Washington, D.C.

July 17, 2006

Mr. Chairman and Committee Members, thank you for the opportunity to testify today on behalf of General Motors. I am Byron McCormick, Executive Director of GM’s Fuel Cell Activities. I lead GM’s global effort to develop hydrogen-powered fuel cell vehicles.

This is an important time in the history of the automotive industry and of General Motors. The world we live and do business in is changing. Automotive technology is clearly changing. Technologies like our new 6-speed transmissions, variable valve timing, and cylinder de-activation – what we call active fuel management – continue to incrementally increase the fuel efficiency of the internal combustion engine. Hybrid technologies – such as our transit bus hybrid system, our hybrid pickup truck, and our new Saturn VUE Green Line hybrid – are saving energy by shutting off the engine while the vehicle is stopped and capturing energy previously wasted during braking. Our two million already fielded FlexFuel vehicles capable of burning E85 ethanol, and diesels running on biodiesel, provide an immediate opportunity to replace petroleum with renewable fuels. And we continue to track new developments in battery technology and believe these could be relevant in a variety of applications.

Taken together, these technologies will have a definite impact on our consumption of petroleum. But, we believe it is hydrogen fuel cell technology that can make the greatest progress.

At General Motors, we believe this technology will simultaneously increase energy independence and security, remove the automobile as a source of emissions, and allow automakers to create better vehicles that customers will want to buy in high volumes.

GM’s fuel cell program is focused on four areas:

            • Developing a fuel cell propulsion system that can compete head-to-head with future internal combustion engine systems.

            • Demonstrating our progress publicly to let key stakeholders experience firsthand the promise of this technology.

            • Collaborating with energy companies and governments to ensure that safe, convenient, and affordable hydrogen will be available to our customers in a timely fashion.

            • Working with governments worldwide to ensure that appropriate market conditions and incentives are in place to enable a successful market introduction and subsequent sustainable market expansion.



At General Motors, we are targeting to design and validate an automotive fuel cell system that has the performance, durability, and cost, assuming scale volumes, to compete effectively with internal combustion engine-based systems. We are making great progress in developing the necessary technologies, and are increasingly confident that we will reach our goal by 2010. Achieving marketplace volume, however, will depend on a number of factors beyond GM’s or any vehicle manufacturer’s control, as I will discuss later.

Technically, we have made significant progress:

• In the last seven years, we have improved the power density of our fuel cell stack by a factor of fourteen. This means that for the same amount of power, our fuel cell is 1/14th as large today as it was seven years ago. This allows it to fit nicely within our vehicles while providing excellent driving performance.

• We have significantly improved, and will continue to improve, fuel cell durability, reliability, and cold start capability – all keys to meeting our customers’ expectations.

• We are developing safe hydrogen storage systems that approach the range levels required for customer acceptance, and are exploring very promising concepts for the next generation of storage technology.

• We are making significant progress on cost reduction through technology improvement and system simplification.

Today, we are demonstrating our vehicles around the world:

• Here in Washington, D.C., over 4,300 people have participated in a ride or drive over the past four years. And the U.S. Postal Service has delivered over a half million pieces of mail in northern Virginia. We also have similar demonstrations under way in California, Japan, Germany, China, and Korea.

• We have collaborated with the U.S. Army in demonstrating the world’s first fuel cell-powered full-size military truck, which is being evaluated and maintained by military personnel at both Ft. Belvoir and Camp Pendleton.

• We will field 32 of our next-generation fuel cell vehicles as part of the Department of Energy’s Learning Demonstration.

• And we created the AUTOnomy, Hy-wire, and Sequel concepts, which show how new vehicle architectures based on fuel cells and hydrogen can reinvent the automobile. Sequel is the first fuel cell vehicle capable of driving 300 miles between fill ups. Later this year, we will be holding test drives to demonstrate the capabilities of this truly impressive vehicle.

The development of technically and commercially viable hydrogen fuel cell vehicles is a team effort, and we are working with key partners on virtually every aspect of fuel cell and infrastructure technology. In addition to the military, some major partners include Shell Hydrogen, Sandia National Lab, Dow Chemical, Hydrogenics, QUANTUM Technologies, and the Department of Energy through the FreedomCar and Fuel Partnership.



GM applauds the Department of Energy and the federal government for its hydrogen infrastructure initiatives. However, in our view, more needs to be done if we are to be ready for fuel cell introduction and the sustainable market growth that we envision over the coming decades.

Four specific areas for U.S. policy development should be considered:

First: While we have made dramatic progress toward a first-generation automotive-competitive system, as with any new technology, the real volume and benefits will be realized in second-generation designs and beyond. As such, we would like to see an expanded national R&D initiative on breakthrough fuel cell materials, hydrogen storage, and hydrogen generation – leveraging the creative capabilities of our government labs, universities, and industrial research facilities – to help us move quickly to later-generation technologies and designs.

Second: We would also like to see the federal government articulate a clear, concise, broadly sanctioned vision that requires agencies beyond DOE and DOD to make hydrogen and fuel cell technology development and application priority areas of engagement.

Clear, consistent, ongoing communication to the American people of this vision and the underlying rationale for hydrogen and fuels cells is also vitally important to building public acceptance of fuel cell vehicles.

Third: Even after we succeed in developing “auto-competitive” fuel cells, the transition to hydrogen will take time. It takes about 20 years to sell enough vehicles to change over the entire vehicle fleet. And, since low volume equals high cost in the automotive business, early vehicles even at moderate volumes will still be expensive, even if our technology can compete at high volume. So we face the proverbial “valley of death” for new technologies as we attempt to growth the market. This is where we see the need for creative policies, incentives, and governments as customers to support the development of the market and creation of a high-volume-capable supply base.

Fourth: Although GM is not in the energy business, as we work to commercialize fuel cell vehicles, we have a keen interest in the pathways to creating and distributing hydrogen, and the technologies and economics involved.

We think about hydrogen like we think of electricity. When we switch on a light, we are usually not thinking about how the electricity is being generated. In most cases, how that is done depends on where we are. We may be drawing on a hydroelectric plant, natural gas-fueled generating station, a nuclear or coal-fired power plant, wind turbines, or even solar cells.

Hydrogen can be made from all the same sources that can be used to generate electricity, which gives us the “power” as a society to choose how we want to produce the energy we need. Each region will evaluate the resources it has available – and, as technology progresses, the economics improve, and societal expectations for environmental and energy sustainability heighten, different options will become preferable in different locations. We do not see an ultimate barrier to making clean hydrogen at prices that can compete with today’s price of gasoline. But, coordinating a successful, sustained market transition will require proper government policies.

So, what is the best way to proceed? To date, this has been primarily an industry initiative, but we’re facing a larger challenge than technology development, larger than something a single automotive company or industry can accomplish – the federal government has an important role to play in helping to incentivize and reduce investment risk and achieve a sustainable transition.

The federal government has historically played this role in transportation initiatives that have addressed larger societal needs – for example, in the creation of the transcontinental railroad and the federal interstate highway system. Low-interest financing; appropriate vehicle purchase incentives; tax credits for investment in a jobs-producing U.S.-based automotive supply base, hydrogen-generation industry, and hydrogen refueling infrastructure, timed and regionally focused to match the rollout of fuel cell vehicles; or other meaningful policies are necessary to support industry’s massive investments in the fundamental underpinnings of our automotive transportation systems, supply base, and fuel infrastructure.

At GM, we are making a very large commitment in dollars and manpower to create a market-ready fuel cell vehicle as soon as possible. Our fuel cell program expects to develop clean, affordable, full-performance fuel cell vehicles that will excite and delight our customers. We believe that with the support of a well-conceived set of policies to incentivize and sustain market and industry development, our customers will buy these vehicles in large numbers and that society will reap the economic, energy, and environmental benefits.

Similarly, we believe that building clean, renewable energy pathways will enable America to reduce its dependence on imported oil, increase our energy security, promote the creation of new industries, stimulate jobs creation and sustainable economic growth, and ensure our country’s ability to compete on a global basis.

General Motors is ready and eager to work collaboratively with government, energy companies, and suppliers to help drive the Hydrogen Economy to reality.
Mr. Tim Leuliette

President and Chief Executive Officer

Metaldyne, Inc.
Read statement
Witness Panel 2

Mr. Tim Leuliette
Senate Committee on Energy and Natural Resources

Statement of Timothy D. Leuliette, Chairman, President and Chief Executive Officer

Metaldyne Corporation, Plymouth, Michigan

Testimony Before the Full Committee Hearing – Hydrogen

July 17, 2006

Mr. Chairman and members of the committee, thank you for this opportunity to testify before you today on the need for our nation to move quickly to a hydrogen economy. I am Tim Leuliette, chairman, president and chief executive officer of Metaldyne Corporation. Metaldyne is a leading global designer and supplier of metal-based components, assemblies and modules for transportation related powertrain and chassis applications including engine, transmission/transfer case, wheel-end and suspension, axle and driveline, and noise and vibration control products to the motor vehicle industry. It has annual revenues of $2 billion and over 6,500 employees at 38 facilities in 14 countries around the world.

To put it in a different perspective we are the 69^th largest automotive supplier in the world, according to Automotive News.

I have had the privilege of working in the auto industry for more than 30 years, most of which I spent in the supplier community. I have served as president and chief operating officer of Penske Corporation, a closely-held diversified transportation services company managing businesses with annual revenues exceeding $10 billion and more than 33,000 employees at over 200 facilities worldwide. I also was president and chief executive officer of ITT Automotive Inc., and president and chief executive officer of Siemens Automotive L.P. In that position I became a member of the Siemens Automotive Managing Board and a corporate vice president of Siemens AG. I was the first non-German to hold this level of authority in the 143-year history of the electrical and electronics company.

I also held executive positions at Bendix and various engineering and planning positions at Ford Motor Company and American Motors Corporation.

In addition, I have experience in private equity as a former partner in Heartland Industrial Partners, a private equity firm established to acquire and expand industrial companies in sectors ripe for consolidation and growth. Heartland builds value by investing in well-positioned industrial companies, whose talent, technology, assets and market position afford them the opportunity to be a platform for industry consolidation and value-creation.

I also have had the privilege of serving on several boards including Collins & Aikman, TriMas Corporation, Vattikuti Urology Institute of Henry Ford Health Systems, and Karmanos Cancer Institute. I am the past chairman of the board of The Detroit Branch of The Federal Reserve Bank of Chicago and have strong affiliations with Detroit Renaissance and Junior Achievement.

In these roles I have been witness to, and part of, many restructuring strategies, new business models and makeovers in the automotive industry. These were minor compared to what our industry is working through today. Globalization has thrown the auto industry into a transformation on a scale greater than we have ever witnessed. This globalization in no way resembles what we saw in the 1980s and 1990s when the mature automakers and their suppliers began to build more plants in emerging countries … and in the southern U.S. This globalization is the 21^st century kind that will redraw boundaries geographically, politically, economically and socially. It will change our business, our technologies and our relationships.



In the end new regions … and companies … will be super-empowered to become superpowers of industry. Our challenge as a nation and as an industry is to play a key role in creating and influencing that structure.

To accomplish that, we must quickly create a National Energy Policy that mandates collaboration with every part of the U.S. auto industry to develop new technologies such as hydrogen. That means including suppliers and all automakers, both domestic and foreign-based with a strong U.S. presence, in the national debate on hydrogen. As a nation and an industry we cannot afford to allow politics and competitive concerns freeze out companies, people or regions to stand in the way.

The National Energy Policy must transcend elections, political parties and corporate boundaries to meet the needs of the consumer, the environment and national security. I commend this Committee on the collaborative business model it set as it worked in a bi-partisan manner to promote energy policy.

As GM’s head of research Larry Burns has said “the biggest risk of all is to sit on the sidelines and not try to create this future.” There’s plenty of precedent, he noted, for a society-wide effort. The Panama Canal, the Manhattan Project and the moon missions of the 1960s all involved public funds and private partners. And all produced dramatic results.

The same can be accomplished with the Hydrogen Title. We must begin building a national consensus for its necessity then fund aggressive research programs aimed at moving the relevant technologies toward commercial viability, and keep them in the U.S.

Role of Automotive Suppliers and the Need to Include Them in the National Debate

The stated purpose of the Hydrogen Title is to:

to enable and promote comprehensive development, demonstration, and commercialization of hydrogen and fuel cell technology in partnership with industry

?to build a mature hydrogen economy that creates fuel diversity in the massive transportation sector of the United States

?to sharply decrease the dependency of the United States on imported oil, eliminate most emissions from the transportation sector, and greatly enhance the nation’s energy security.

Accomplishing these goals requires a comprehensive "partnership with industry." Unfortunately, no such partnership exists between the federal government and the automotive industry because current programs fail to include two-thirds of the auto industry… the supplier community.

?According to the most recent statistics released by Motor Equipment Manufactures Association (MEMA) in June 2006:

U.S. automotive suppliers (parts manufacturers) are a $384 billion industry ($199.2 billion of the market consists of Original Equipment and $184.7 billion consists of the Aftermarket, which are the components used to repair and service vehicles once they are already out on the road.

Overall, the U.S. automotive supplier industry employs more than 1.2 million people at over 11,500 domestic plant locations across the country.

There are 2.9 jobs in the auto supply chain for every 1 assembly (automaker) job and supplier products account for more than two-thirds of the content on each new vehicle.

This is a large, nationally and globally influential group that must play a leading role in this initiative. ?Yet, despite their weight in terms of employment, facilities and capital investment, suppliers have no formal or direct ability to participate in the federal government's hydrogen program (FreedomCAR). They can only bid for grants and projects under the EERE Vehicle Technologies Program, which focuses more on hybrid components and short term gains in fuel efficiency. They also don’t have a seat at the table in the Congressional and national debate on hydrogen policy.

This is not only an oversight; it is a huge mistake that will extend the timeline to achieving the Hydrogen Economy by decades. There is a misconception that suppliers simply build systems, components and parts to automaker specifications. In reality suppliers play a key role in automotive R&D and innovation. According to a recent NSF report, the auto industry spent $16.9 billion on R&D in the U.S. in 2003. Of that, supplier R&D accounted for $6.9 billion, or 40%.

Let’s take a look behind the numbers and into the DNA of the supplier network. The R&D done by the automakers is often applied R&D. The pure R&D is done by suppliers, and it has been for years. Automakers didn’t develop airbags, suspension systems, anti-lock brakes or windshield wipers that sense the rain and automatically turn on, just to name a few innovations created by suppliers and “applied” by the automakers.

Suppliers are used to being nimble, fast and flexible, to serving numerous customers and to delivering new products to the marketplace quickly. They have honed these skills through collaboration within the supplier community and innovative partnerships.

Many suppliers already have such programs in place for alternative energy. For example:

Freudenberg-NOK General Partnership (FNGP) between Freudenberg & Co. of Germany and NOK Corporation of Japan has been involved in the research and development of advanced fuel cell sealing technology for more than 10 years. Headquartered in Plymouth, Michigan, FNGP handles the entire group’s manufacturing R&D work, with a portion of the operation focused on automotive and stationary fuel cell development. Originally considered less critical than other parts of the fuel cell tack, sealing technologies have received renewed attention over the past few years.

ECD Ovonics and its partners successfully completed a demonstration project to modify a commercial gasoline/electric hybrid vehicle to run on hydrogen utilizing a new low- pressure, metal hydride hydrogen storage system developed and manufactured by Texaco Ovonic Hydrogen Systems, LLC, a joint venture between a unit of ChevronTexaco Corp and ECD Ovonics.

Delphi Corp., a partner in the U.S. Department of Energy’s advanced fuel cell development program, has exceeded the power density level required to meet the government’s $400 per kilowatt cost goal for fuel cells. Meeting the cost target is essential if fuel cells are to expand beyond their current niche markets into widespread commercial use. At $400 per kilowatt – nearly one-tenth the cost of power-generating fuel cells currently sold on the market – fuel cells would compete with traditional gas turbine and diesel electricity generators and become viable power suppliers for the transportation sector.

Siemens is partnering with the University of South Carolina to build and test a prototype diesel engine that runs on hydrogen instead of petroleum.

As you can see the supplier community is ready, willing and more than able to play a leading role in the march to the hydrogen economy. It simply needs an avenue to march down and an invitation to the parade. The Hydrogen Technical and Fuel Cell Advisory Committee the Secretary of Energy is establishing to advise the government on hydrogen programs is just that avenue.

The committee is to consist of representatives from domestic industry, academia, professional societies, government agencies, federal laboratories, previous advisory panels, and financial, environmental, and other appropriate organizations. I urge this Committee to ensure that DOE makes this group an active participant in its efforts and the creation of future policies and national strategies.

I also strongly encourage this Committee to extend membership in the Hydrogen Technical and Fuel Cell Advisory Committee to the automotive supplier industry, to other groups such as SAE and to the entire “domestic” auto industry. We need to include foreign-owned manufacturers with a significant presence in the U.S. (e.g. Toyota, Honda, Nissan, Bosch, Denso, etc.)

As I’ve outlined this hydrogen strategy, you’re probably asking yourself, why is this guy who heads a nuts and bolts company pushing hydrogen? The answer is simple. The industry and the hydrogen movement need the engineers at Metaldyne and other suppliers to address the tactical issues of hydrogen vehicles. Suppliers are often the inventors of technology and hydrogen is no different. There is money to be made here and I intend to be sure Metaldyne is at the forefront. As suppliers of powertrain and chassis components and systems we must not only be prepared for new and developing technologies, we must take a leadership role in ensuring the most positive long-term solutions are adopted. That solution is hydrogen.

Investment in Hydrogen Technology Is a Jobs and Global Competitiveness Issue

The countries and industries that develop the technologies that move to the hydrogen economy first will see significant job growth. However, none of this will happen overnight.

Many of those jobs will be in the traditional automotive supplier community as well as in new entrepreneurial companies that will continue to grow up as a result of new technology. There will be new R&D and manufacturing jobs. There will be new jobs created to develop and build new alternative energy distribution networks.

To attract and maintain these jobs we must create a collaborative environment in the U.S. that will foster the growth of the hydrogen economy. Otherwise there is every reason to believe the jobs will go to other countries with strong R&D networks and aggressive collaborative government / industry programs.

We have the resources in this nation to makes the hydrogen economy a reality. For example, Michigan currently is home to GM, Ford, DaimlerChrysler, Toyota, Nissan, Hyundai R&D centers as well as dozens of supplier R&D centers. South Carolina formed the South Carolina Hydrogen and Fuel Cell Alliance, a state-wide initiative designed to promote the development and use of quality, cost effective and accessible hydrogen fuel cells, and related technologies. Indiana has supported the development of several efforts such as the ForeverGreen Enterprises Inc. construction of a high-technology hydrogen production facility in DeKalb County. The company will manufacture Green Hydrogen from materials that would otherwise be regarded as waste, therefore reducing manufacturing costs and the negative impact this waste would otherwise have on the environment. Our national labs have hydrogen programs going.

During a visit to the California Fuel Cell Partnership last year President Bush said “the idea of a hydrogen-powered automobile is not a foolish dream. It is a reality that is going to come to be … Hydrogen has vast potential to dramatically cut our dependence on foreign oil … Investing in new technologies, like hydrogen, will enable our economy to be strong.”

I couldn’t agree more that the world is hooked on oil. It’s a life-threatening addiction that is driving countries, companies and individuals to try and kick the habit. This dependence not only threatens to further weaken profits and cost jobs among the U.S. automakers, it is a national security risk to the United States and is wreaking havoc on the global environment.

The U.S. is currently struggling with how it will maintain its superpower status and our status as the largest consumer of energy and oil is making it more and more difficult. The only way we are going to gain a competitive advantage is if we solve the energy issue before other countries do and that demands a National Energy Policy and a larger commitment to hydrogen.

Washington has committed $1.2 billion to its Hydrogen Fuel Initiative, with the goal of producing commercially viable fuel cell vehicles by 2020 and a major dent in domestic oil usage by 2040. As you know, that is simply too little. I commend this Committee for its strong stand to authorize substantial monies to the hydrogen initiative and encourage the current Administration to move that recommendation forward. The United States can’t be a superpower if it’s out of power. The current plan outlines a timetable 10 times longer than the Manhattan Project and four times longer than putting a man on the moon.

In short, there is no unified sense of urgency on a national level to develop a robust, realistic, well-funded energy policy that allows us to thumb our noses at gas stations in the near future.

Such a play is essential as the globalization march continues. As China, India and other developing countries embrace free markets and foreign investment, they’re producing hundreds of millions of newly minted middle-class car buyers. In the U.S. we are producing a new person every 12 seconds, and each one of them will need a car. Between now and 2020, the number of vehicles worldwide likely will rise from 750 million to more than a billion.

We can’t keep up with the oil consumption needed to run those vehicles. The International Energy Agency says that in its base line year of 2002 the world consumed 78 million barrels of oil daily and had a production capacity of 80 million barrels a day. By 2015 the agency estimates that the world will be consuming 103 million barrels a day, and 119 million barrels a day by 2025.

The catch is the world cannot meet the demand.

Boone Pickens says worldwide production of oil is 84 million barrels a day and is never going any higher … that is unless we find the capital investment money needed to search under new sands and seas for untapped reserves.

So if we add the expected 300 million vehicles to the mix, and the result could be a “super spike,” with the price of a barrel of crude, at least for a time, exceeding $100. That $100 a barrel price tag would have a devastating impact on the Midwest, and ultimately, the nation.

A recent study by the Office for the Study of Automotive Transportation, the University of Michigan Transportation Research Institute and the National Resources Defense Council called “In the Tank” says that at $80 to $100 a barrel … the equivalent of $2.86 to $3.37 at the pump … Detroit’s Big Three automakers would see their sales fall 9-14 percent, a decline of 1.9 to 3 million vehicles. That would mean an industry-wide drop of $11.2 to $17.6 billion in pre-tax profits.

In addition, 16 factories, mostly in the Midwest, could close and at least 297,000 jobs would be on the line, 37 percent of which are in Michigan, Ohio and Indiana.

It should be noted that the week of July 4 the U.S. consumers paid an average of 3.9 cents more than the week before, or $2.97 a gallon, the second-highest level ever, the government said Monday. The national pump price for regular unleaded gasoline is up 65 cents from a year ago and not far from the record $3.07 reached last September after Hurricane Katrina disrupted petroleum supplies, according to the federal Energy Information Administration's weekly survey of 800 service stations.

Depending on fuel prices and consumer incentives, sales of hybrids and advanced diesels are likely to go from about 100,000 units this year to as many as 1.8 million by about 2010. Initially, most of these vehicles will be imported. Since advanced diesel engines under about 5 liters will displace many gasoline engines, and since full hybrids don’t use conventional transmissions, Michigan and Ohio – and to a lesser extent Indiana – stand to be major losers unless production of these vehicles, or at least their powertrains, are produced in this area.

Specifically, if 1.8 million “HADs” … that is hybrids and advanced diesel vehicles … are sold by the end of the decade, these three states stand to lose more than 66,000 jobs, nearly one-third of the U.S. total of 207,000 potentially lost jobs, according to Fuel-Saving Technologies and Facility Conversion: Costs, Benefits, and Incentives.

These statistics drive home the need for a collaborative strategy that attracts not only hybrid technology but ensures future alternative energy powertrains and vehicles are developed and manufactured in this country. If the U.S. truly wants to be player in 2020 there must be a strong, doable national plan for hydrogen. Hydrogen is the most abundant, environmentally friendly fuel source in the universe and it is the way of the future.

We need to follow a four-step plan to reduce our dependency on oil. The first two we can do in the automotive industry. The second two require political action.

·         First, establish a well-funded and powerful industry consortium made up of all the major stakeholders … automakers, suppliers and labor.

Second, establish a hydrogen-powered vehicle design team to set industry practice and design rules.

Third, set a national target that 80 percent of the vehicles sold in the United States and 100 percent of the imported vehicles are hydrogen-powered by 2025.

Fourth, provide federal customer incentives, research dollars and funding for infrastructure issues by imposing a gas tax and/or by alternative means that include investment by public and private equity.

Capturing the Interest of the American People – Educating the Public on Hydrogen

One of the hydrogen economy’s greatest challenges is moving the public away from its fascination with hybrid and ethanol vehicles. That will require a collaborative effort among all stakeholders – government, automakers, suppliers, unions – to educate people on the benefits of hydrogen and the need to quickly move to that technology.

The timing is right. A CNN poll conducted in early May found that 60% of adults thought seriously about purchasing a fuel-efficient vehicle because of the skyrocketing price of gasoline.

The message is simple. Hybrids and ethanol, while good and necessary intermediary steps to hydrogen, are not long-term solutions to our dependency on oil. There are many studies out today that are either pro or con when it comes to these forms of alternative energy. The most important thing is that they are being discussed in many forums and are generating conversation and public awareness. That can only help create more conversation about the need to move more quickly to the hydrogen solution.

Hybrid vehicles might actually use more fuel than a normal car. They run on full gasoline at highway speeds because the ECU detects highway long journeys might drain the battery too fast. In addition, the gasoline in hybrids relatively small and therefore has to work harder and use more fuel compared to a conventional powered vehicle with a larger more potent engine.

There are other disadvantages. The metals in the nickel-metal hybrid battery currently used in hybrid vehicles are 25 times more expensive than lead. Nickel has been identified as a carcinogen. Hybrid vehicles have not been on the road long enough to allow the batteries to prove their projected cycle life. No significant recycling capability exists.

Ethanol also is not a long-term cure. According to scientists in New York and California, it takes more energy to make ethanol than you get back in fuel savings. More precisely, says David Pimentel of Cornell University, it takes the equivalent of 1.29 gallons of gasoline to produce enough ethanol to replace one gallon of gasoline at the pump. Instead of making the nation more energy self-sufficient, ethanol production actually increases our need for oil and gas imports, he says. Pimentel and Tad W. Patzek, professor of civil and environmental engineering at Berkley, conducted a detailed analysis of the energy input-yield ratios of producing ethanol from corn, switch grass and wood biomass as well as for producing biodiesel from soybean and sunflower plants.

"The United State desperately needs a liquid fuel replacement for oil in the near future," says Pimentel, "but producing ethanol or biodiesel from plant biomass is going down the wrong road, because you use more energy to produce these fuels than you get out from the combustion of these products."

In a recent paper in the journal Natural Resources Research, he calculates it takes the energy equivalent of 271 gallons of gasoline to grow a hectare (about 2.47 acres) of corn. Part of that energy is for tractor fuel, but the biggest use is for manufacturing nitrogen fertilizers, which are mandatory for high-yield corn-growing. These fertilizers are made by heating natural gas under controlled circumstances so that it reacts with nitrogen in the air. Not only does it take heat to do this, but it uses up natural gas that could have been burned as fuel. Pimentel estimates that in corn-growing, nitrogen fertilizers alone use the equivalent of 80 gallons of gasoline per hectare.

Another study done at the Universite Laval in Quebec, Quebec, in 2004 says E85 costs substantially more to operate annually. For example, the annual cost to use E85 in a Chrysler Sebring convertible was $1323 in 2004 U.S. dollars, compared with $900 for gasoline.

While this study and others are heavily questioned by pro-ethanol groups the positive side is that they are generating conversation and public awareness. That can only help create more conversation about need to move more quickly to the hydrogen solution.

A National Strategy on Hydrogen – How Private Equity Can Help Fund This Needed Transition to a New Energy Source

The Hydrogen Title directed the Secretary of Energy to draft a coordinated plan for the programs that are directly related to fuel cells or hydrogen. The plan was required to describe the national agenda for the next five years for the programs and the milestones that will be used to evaluate the programs for the next five years. This strategy could attract substantial interest from private equity if the Secretary’s plan lays out a solid platform, a strong roadmap and timeline and provides the underlying stability needed from the federal government.

Attracting private equity is key to quickly moving the hydrogen economy forward. The federal government does not have the funds. Private equity does. In 2004 there was approximately $100 billion of undeployed private equity funds in U.S. and €39 billion in Europe, according to Jay Alix, president of Alix Partners, a private equity firm with substantial investments in the auto industry.

“Enormous new markets are developing through the commercialization of energy technologies,” said M.Grier Eliasek, managing director of Prospect Street Ventures, a leading private equity and merchant banking firm focused on investing in energy companies. “We believe these markets offer excellent opportunities for private equity investment, and we are actively pursuing a number of such opportunities at this time. In an economy in which many sectors are struggling for growth, energy technology represents a robust, rapidly growing market.”

Several firms have shown interest in several forms of alternative energy as concerns about peak oil supply, skyrocketing oil and natural gas prices and national security issues heat up. In fact, the energy component is the fastest growing clean technology and makes up more than 70% of investments in the clean technology industry, Tucker Twitmyer, managing partner with Philadelphia-based EnerTech, a venture capital firm focused on energy technologies, said in a recent Knowledge @ Wharton article.

The article also points out that the window of opportunity for investment in clean technology has never been more robust. According to the 2006 Cleantech Venture Capital Report on North American venture capital investing, up to 3% of all venture capital was used for clean technology during the dot.com bubble from 1999-2001. That rose to 5-6% from 2002-2005 and the study suggests that it will jump to 10% of all VC investment by 2009. That amounts to between $6.2 billion to $8.8 billion invested as venture capital firms go to the markets to raise capital in an estimated 1,000 rounds between 2006 and 2009, the article said.

Following are some example of venture capital investments in clean energy:

Kleiner Perkins Caufield & Byer has backed a handful of clean tech companies, including Miasole, a San-Jose based solar technology firm. Former Secretary of State Colin Powell is one of KPCB’s general partners.

EnerTech, which invests in power and energy consumption, manages $290 million, 80% of which is in clean energy.

New Energy Capital (NEC) in New Hampshire is financing renewable and efficient energy projects from wind power to geothermal to biofuels.

Goldman Sachs owns wind farm projects through its acquisition of Horizon Wind Energy

Yellowstone Energy Ventures has made minority investments in public and private companies involved in alternative energy and renewable energy technologies. It has invested in several fuel cell companies including Protonex Technology Corporation, which is developing fuel cells with emphasis on military applications, and Cellex, which is a leader in fuel cell power solutions for industrial vehicles.

Virent Energy Systems, a University of Wisconsin spin-off, just received $7.5 million in venture capital from Cargill Ventures. Virent is trying to develop a cost-effective way to generate hydrogen fuel from water and sugar in a one step process as part of a car’s engine or an electrical generator.

Challenges Facing the Auto Industry

The U. S. auto industry is going through a transformation unlike anything we have witnessed before. This transformation has been in the offing for more than 25 years, ever since the first oil crisis in the early 1970s. Since then the traditional domestic auto industry has been teetering on the edge of the cliff only to be drawn back by the deceitful business cycle of improved sales, better profits and the promise of diversification success we’ve come to expect over and over again. This time the consumer is driving the transformation and many companies are not prepared because they didn’t learn from the past and adjust their strategies accordingly.

That said we need to remember in all this that the auto business is strong, vibrant and growing. We have had record or near record annual sales in the U.S. since the turn of the century. The difference is the competition is stronger … and there’s more of it. The U.S. auto market now looks more like the European market with 8-10 major companies vying for business instead of three companies – General Motors, Ford and Chrysler – dominating the market.

This transformation is good and necessary … for the industry and the U.S. It is a form of creative destruction that is driving home a sense of urgency to develop the right product, be flexible, embrace change and learn from the past. As economist Joseph Schumpeter said creative destruction is the process of replacing good things with better things. This creative destruction has shaken the auto industry to the core and instills a sense of urgency to change … to find and embrace new, more innovative business models and technologies that require working together.

Industry, government and public and private investors need to have that same sense of urgency about the pace at which this nation moves toward a hydrogen economy. There is no time to waste. The product development decisions being made today are for vehicles that will be built 10 years from now. Companies are not only deciding what vehicles they will build … you can bet many will be alternatively fueled … but where they will build them and where their systems and components will be sourced. The only way to ensure those vehicles are built in the U.S. is to develop a robust, innovative and comprehensive national energy policy that requires collaboration among all domestic industry (automakers and suppliers), academia, professional societies, government agencies, federal laboratories, previous advisory panels, and financial, environmental, and other appropriate organizations.

Conclusion

The auto industry, which has long been the bedrock of the U.S. economy, is at a crossroads and must adopt a new business model that will weave its collective expertise into a single fabric. This new model requires collaboration at all levels – manufacturing, technology, and research and development. This new business model will be based on realistic relationships that will meld cultures, philosophies and technologies and prepare us for a new future that will be nothing like we’ve seen before.

Developing alternative energy sources that will decrease the U.S. dependence on petroleum imports is key to developing that new business model. To accomplish that we must collaborate and share information – without jeopardizing competitive advantages for companies. The technological challenges facing the industry and the nation today are more than any single company can achieve without extraordinarily large financial expenditures within a reasonable timeframe. The problem requires a national effort that pools the resources of the federal government, all sectors of the automotive industry and public and private investors to move the U.S. to a hydrogen economy faster and more efficiently.

There is simply no future in the status quo and there can be no status quo in our future.

Mr. Jim Balcom

President and Chief Executive Officer

PolyFuel, Inc.

Hearings and Business Meetings

Archived Webcast

Witness Panel 1

The Honorable David Garman

Witness Panel 2

Dr. Donald Paul

J. Byron McCormick

Mr. Tim Leuliette

Mr. Jim Balcom