Master thesis – Analysis of a hydrogen-based transport system and the role of public policy in the transition to a decarbonized economy

Alena Kotelnikova – Doctoral thesis presented on Oct. 3 2016 – Université Paris Saclay and Ecole Polytechnique.

What economic and policy framework would foster a transition in the European transport sector from fossil fuels to hydrogen in the long term (2030-50)? This research combines empirical and theoretical approaches and aims to answers the following questions:
1. How to design appropriate policy instruments to solve inefficiencies in hydrogen mobility deployment?
2. How to define abatement cost and an optimal launching date in the presence of learning-by-doing (LBD)?
3. How to define an optimal deployment trajectory in presence of LBD and convexity in investment costs?
The paper ‘Transition Towards a Hydrogen-Based Passenger Car Transport: Comparative Policy Analysis‘ draws a cross-country comparison between policy instruments that support the deployment of Fuel Cell Electric Vehicle (FCEV). The existing policy framework in favour of FCEV and hydrogen infrastructure deployment is analysed. A set of ex-post policy efficiency indicators is developed and calculated to rank the most active countries, supporters of FCEV. The comparison stands on a series of complementary indicators including vehicle Affordability, Annual Advantage in Running Cost and Total Cost of Ownership (TCO), State Financial Participation. FCEV possession price is shown to be lower in Denmark, Norway and Japan, and is higher elsewhere. A high possession price of FCEV could be compensated by the advantage of lower running costs within ten years notably in France, Sweden and California, USA. The analysis shows that the most generous incentives are available under price-based policy instruments design, which allows maximising short-term FCEV deployment rate. Denmark and Japan emerge as the best providers of favourable conditions for the hydrogen mobility deployment: local authorities put in place price-based incentives (such as subsidies and tax exemptions) making FCEV more financially attractive than its gasoline substitute, and coordinate ramping-up of their hydrogen infrastructure nationally.
The paper ’Defining the Abatement Cost in Presence of Learning-by-doing: Application to the Fuel Cell Electric Vehicle’ models the transition of the transport sector from a pollutant state to a clean one. A partial equilibrium model is developed for a car sector of a constant size. In this model the objective of the social planner is to minimize the cost of phasing out a stock of polluting cars from the market over time. The cost includes the private cost of green cars production, which are subject to LBD, and the social cost of carbon, which has an exogenous upward trend. The optimal path involves (i) a waiting period for the transition to start, (ii) gradual replacement of polluting cars by the green ones, and (iii) final stabilization of the green fleet. During the transition, the equalization of marginal costs takes into account the fact that the current action has an impact on future costs through LBD. This paper also describes a suboptimal plan: if the deployment trajectory is exogenously given, what is the optimal starting date for the transition? The paper provides a quantitative assessment of the FCEV case for the substitution of the mature Internal Combustion Engine (ICE) vehicles. The analysis concludes that the CO2 price should reach 53€/t for the program to start and for FCEV to be a socially beneficial alternative for decarbonizing part of the projected German car park in the 2050 time frame.
The impact of LBD on the timing and costs of emission abatement is, however, ambiguous. On the one hand, LBD supposes delaying abatement activities because of cost reduction of future abatement due to LBD. On the other hand, LBD supposes starting the transition earlier because of cost reduction due to added value to cumulative experience. The paper ‘The Role of Learning-by-Doing in the Adoption of a Green Technology: the Case of Linear LBD’ studies the optimal characteristics of a transition towards green vehicles in the transport sector when both LBD and convexity are present in the cost function. The partial equilibrium model of (Creti et al., 2015) is used as a starting point. For the case of linear LBD the deployment trajectory can be analytically obtained. This allows to conclude that a high learning induces an earlier switch towards green cars in the case of low convexity, and a later switch in the case of high convexity. This insight is used to revisit the hydrogen mobility project in Germany. A high learning lowers the corresponding deployment cost and reduces deepness and duration of the, investment ‘death valley’ (period of negative project’s cash flow). An acceleration of exogenously defined scenario for FCEV deployment, based on the industry forecast, would be beneficial to reduce the associated transition cost.

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