First of a three-part series.

Humans have harnessed hydrogen for a variety of applications, from blasting rockets into space to making common household products like toothpaste. Now, after decades of development, hydrogen is about to find its way into the family car.

In June, Hyundai Motor Co. began leasing its Tucson Fuel Cell and has pledged to produce 1,000 units globally by 2015. Toyota Motor Corp. and Honda Motor Co. will start sales of their next-generation fuel cell vehicles (FCVs) next year. Yesterday, Toyota released a video showing the Mirai, its first commercial fuel cell car.

Several other automakers are aiming to release fuel cell cars in 2017.

One benefit is that FCVs bring tailpipe emissions down to zero, so tightening auto emission standards will be less of a problem for automakers. Another benefit is that while plug-in electric cars have range limits and time-consuming refueling, FCVs—which use hydrogen to make electricity—will be very familiar to car buyers.

They can be refueled in less than five minutes and boast a 300-mile driving range. For these reasons, several governments and car companies are betting on hydrogen as the clean transportation fuel of the future and one that will ultimately win consumers' favor.

The downside, at least for a while, is that although hydrogen is the most abundant molecule in the universe, hydrogen-dispensing pumps and the supply chains that feed them are still almost nonexistent.

Last year, California approved funding of up to $200 million to build at least 100 hydrogen fueling stations during the next decade. The state currently has 10 publicly accessible fueling stations and more than a dozen in construction.

There are several possible pathways for producing and distributing hydrogen to these sites, each of which has a different business case and could involve a different set of actors. Where the hydrogen supply comes from also determines the FCVs' net emissions because, while the cars themselves don't produce any, the most immediate sources of its hydrogen will probably come from natural gas, a fossil fuel.

For the FCVs market to truly take off and contribute to meeting climate goals, governments and its industry partners will need to establish a robust network of fueling stations with clean and affordable hydrogen.

Much work and investment still to come
During the next year, FCVs will start to roll out in California, where the state has set a target to put 1.5 million zero-emissions vehicles on the road by 2035. In May, the California Energy Commission (CEC) announced it is investing $46.6 million to build an additional 28 fueling sites (ClimateWire, May 8).

FirstElement Fuel, a California-based startup company formed last year, received a $27.6 million grant to build 19 stations as part of the CEC's $46 million funding announcement. Toyota is also backing the year-old startup with at least $7.2 million, according to Bloomberg. Last month, FirstElement Fuel signed a contract with Air Products and Chemicals Inc. to provide the equipment for the stations, all of which will be built out by the end of 2015.

"We're very much at the center of this whole infrastructure thing, and I would say almost the entire thing is riding on us right now in California," said Shane Stephens, chief development officer and principal at FirstElement Fuel.

New players such as FirstElement Fuel have stepped in to build out the "Hydrogen Highway" after established industries balked at the opportunity.

Such industrial gas companies as Air Products, Air Liquide and the Linde Group that already produce hydrogen in large volumes would seem like natural leaders of the hydrogen transportation fuel market. Several of these companies have drawn on their expertise to demonstrate the storage, compression and dispenser technologies needed to fuel cars. But, according to Stephens, industrial hydrogen producers would prefer to remain equipment and bulk gas providers than get into the risky fuel-retailing business.

Oil companies, the global leaders in supplying transportation fuel to distributed networks, could also have taken the lead. In 2011, Shell Oil Co. partnered with Toyota to launch a station in Newport, Calif. But, on the whole, oil companies are reluctant to embrace the new fuel, which will eventually compete with gasoline.

California originally crafted legislation that would require major oil importers and refiners to pay for the Hydrogen Highway. But when oil giants threatened to sue, the state designed a compromise that would shift the cost to consumers through vehicle registration fees. A.B. 8 was signed into law in September 2013.

Oil companies back away
The business case for building hydrogen infrastructure has been weak with few cars around to use it. Some also argue that oil companies have been resistant to backing hydrogen because they see it eating into their core petroleum business.

With gasoline-powered vehicles becoming more efficient, ongoing debates around increased biofuel blending and utilities getting the business from electric vehicle charging, adding hydrogen to the mix could eat away at oil companies' market share.

"Oil companies face the prospect of ultimately having to deal with competition that is going to overtake them," said Mary-Rose de Valladares, manager of the International Energy Administration Hydrogen Implementing Agreement, which is developing a comprehensive road map on the production and utilization of hydrogen.

"The Stone Age didn't end because we ran out of stones," she added.

The problem is that established companies often suffer from "innovators dilemma," according to de Valladares. These companies are too focused on customers' current needs to adapt their technology or business models to customers' future needs.

"Hydrogen runs contradictory to the oil companies' current infrastructure, which is all based around liquid fuel," Stephens said. "They're really looking more into the exploration and drilling side of it, so they're not really on the retailing or fuel transport side, or even the refining side.

"I think that's why you saw a lot of pushback from oil companies, they were afraid they'd somehow get forced to do hydrogen, and it's not really in their wheelhouse," he added.

Gil Castillo, Hyundai's senior manager for alternative vehicle strategy, said he sees oil companies getting on board further down the road once they see there's money to be made. "Right now, I think the oil industry is looking for a pathway toward profitability," he said.

Patchy fuel delivery system
Gas station owners, which are generally independent business operators as opposed to big oil producers, also have to see a business case for hosting a hydrogen pump on their property. In September, Reps. Patrick Murphy (D-Fla.) and Charlie Dent (R-Pa.) introduced legislation to extend a federal tax credit of as much as $30,000 for installing zero-emissions fueling stations, which are set to expire at the end of the year.

According to an analysis by the University of California, Davis, the hydrogen infrastructure business will be self-sustaining once there's demand from 50,000-100,000 vehicles, which could happen by the end of the decade.

Though costs are dropping, filling stations today have a price tag upward of $1 million. The cost varies in part based on how the fuel is produced.

Today, the cheapest, most common way to make hydrogen is from natural gas steam reformation. The U.S. shale boom has further improved the economics of natural gas-derived hydrogen, which has been a major force in boosting support for hydrogen energy.

About 9 million metric tons of hydrogen is already produced in the United States each year, predominantly to refine petroleum, treat metals, process foods and make household products. Most hydrogen is produced and used on-site at industrial facilities. But a significant portion is produced regionally and delivered by truck or pipeline to more distant users.

"[Hydrogen] is used in so many things, and we're not aware of it," said Chris White, communications director at the California Fuel Cell Partnership, a public-private organization aimed at advancing the FCV market. "And we're not aware that there's an existing distribution system right now. You probably pass a hydrogen tanker on the road and don't even realize."

At the outset, the production and delivery of hydrogen transportation fuel is likely to piggyback on the industrial gas industry's existing supply chain. The vast majority of stations—including all 19 stations FirstElement Fuel is building—will use fuel that's produced at large, centralized plants and delivered by truck to the dispenser.

"We use traditional production methods that we know are reliable and cost-effective to start this market up because we don't want to penalize the market with high fuel costs," said Bob Oesterreich, director of hydrogen energy at Air Liquide, which recently received CEC funding to bring three fueling stations online in 2015. "We recognize we need to get this market going."

But as the market grows, burning diesel to transport hydrogen made from natural gas to a widespread network of fueling stations will make less economic and environmental sense.

Limits of natural gas
Building hydrogen infrastructure is challenging because the fuel doesn't exist in a distributed system, said Dean Frankel, energy storage analyst at Lux Research.

Existing hydrogen production takes place predominantly in California, Louisiana and Texas. There are only so many cars creating demand near these existing hydrogen-production sites, and establishing a network of new sites comes with a high price tag. In contrast, electric vehicles need only plug into the nearly ubiquitous U.S. electrical grid.

Also, using natural gas to make hydrogen is unsustainable long term, Frankel said. "It's going to be a terrible environmental solution if we emit water out of the tailpipe, but throughout the whole process emit natural gas."

Still, an FCV running on hydrogen from natural gas has less than half the CO2 emissions of a gasoline-powered car, measured by the emissions needed to make its hydrogen. But California's rules will eventually require further reductions to meet the state's targets.

California law requires that 33 percent of hydrogen fuel come from renewable sources. Companies are predominately meeting the mandate by adding biogas to their natural gas feedstock at plants where they use steam to extract the hydrogen from natural gas. New hydrogen production methods coming down the pipeline could nearly eliminate greenhouse gas emissions.

"Going to low-emissions vehicles is necessary, but not sufficient," to effectively address climate change, said Nick Nigro, senior manager of transportation initiatives at the Center for Climate and Energy Solutions. "You have to look all the way upstream and produce the fuel in a low-carbon way."

Tomorrow: Fuel from sewage and other homegrown sources.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500