How can economic modelling help us increase the demand for renewable hydrogen in the automotive sector, and why can it be compared with fishing quotas?
Fishing quotas are set to optimize the extraction of marine resources over the years. The quota value corresponds to an optimum that keeps the marine wildlife populations stable, while still maintaining a fishing industry. A similar mechanism could be used to maximize demand for renewable hydrogen from vehicles.
It is our hope to increase the demand for this hydrogen, produced by electrolysis using low-carbon electricity. Today, most hydrogen consumed by fleets of hydrogen cars is produced via steam reforming of natural gas, due to lower costs of production, while electricity prices are rising in Europe (without considering the short-term volatility of gas and electricity markets related to the Ukrainian crisis). It is certainly not ideal from a climate point of view, nor for our energy independence.
Now, let’s assume we set a target for a certain proportion of renewable hydrogen at filling stations, mixed with hydrogen from fossil energy. The higher this proportion is, the more expensive the user cost will be, decreasing the chances of growing fleets of hydrogen cars. On the other hand, no renewable hydrogen at all in the mix would mean cheaper refuelling and potentially growing fleets of hydrogen cars, but of course zero demand for this type of hydrogen. It means there is an optimal proportion of renewable hydrogen at the filling stations to obtain the highest demand for this type of hydrogen.
Like marine resources, a quota could help us to maximize the potential of renewable hydrogen. The state regulator could set each year a lower bound for the average proportion of renewable hydrogen at filling stations.
Economic modelling would give us the value of this ideal average proportion of renewable hydrogen at stations. This would enable hydrogen car fleets, electrolysis capacities, and the hydrogen industry to expand; and such a model is certainly feasible since I have already designed it.
For each of the coming years, the model would provide a curve of renewable hydrogen demand based on its proportion at filling stations. It would more or less look like a skewed normal distribution, with its maximum corresponding to the targeted proportion.
This mechanism would cost nothing to the State (it is hard to do better than that) and would maximize the demand for renewable hydrogen. As a consequence, it would also maximize environmental and macroeconomic benefits.
We would have a better trade balance due to a reduced dependence on oil imports, and more jobs would be created in hydrogen production. Each year, we would achieve the maximum number of cumulative kilometres using this low-carbon, locally produced fuel. Over time, it could also help reduce electrolysis costs by providing more predictability for investments in this sector. Until one day, hopefully, we would even reach parity with hydrogen from fossil fuels, meaning a possible 100% proportion of renewable hydrogen at filling stations.
Economic modelling is an adequate response to the rising complexity of the issues we have to face. We surely shouldn’t avoid this option.
Don’t hesitate to contact me if you require economic modelling skills for your strategic decisions, I will be glad to provide tailor-made modelling support.
