18 August 2023
By Alejandro Lazo

Hardly anyone owns a hydrogen car. California may pay up to $300 million for fuel stations anyway

A driver adds hydrogen fuel to his vehicle at an Iwatani hydrogen fuel station in West Sacramento on July 25, 2023.
 Photo by Miguel Gutierrez Jr., CalMatters

IN SUMMARY

With only 12,000 hydrogen cars on the road, and just two models for sale, California lawmakers are debating how much state money should support them.

Electric cars are rolling off production lines, and one in five new cars sold in California this year is battery-powered. “California is showing the world what’s possible,” said Gov. Gavin Newsom, whose plan to phase out fossil fuels and gasoline-powered cars is key to his ambitions of tackling climate change.

But as California steers away from the internal combustion engine, the rapid transition is fueling a fight in the Capitol over how large a role hydrogen fuel cells will play in powering the clean cars of the future.

Democrats in the state Legislature are debating how much money to give companies to build hydrogen fueling stations. A lobbying group for hydrogen supporters and suppliers, including Chevron, Shell and Toyota, is seeking a designated 30% share of money from the state Clean Transportation Program, amounting to $300 million over the next decade.

The program is funded by annual fees paid by California drivers — $2 car registration fees and $4 smog abatement fees. Over the last decade, hydrogen has been earmarked for 20% of its funds.

So far, the California Energy Commission has spent $202 million for hydrogen fueling stations. Yet there is still low demand for the cars, with sluggish sales: Only two hydrogen models are available, the Toyota Mirai and Hyundai Nexo, and only 1,767 have been sold in California this year. Last year’s sales declined 20% although sales are up this summer.

In all, Californians own only about 12,000 hydrogen-powered cars, compared to more than 760,000 powered by batteries.

Like battery-powered cars, hydrogen cars produce no emissions. But the electricity to run their motors uses compressed hydrogen gas, which is mostly derived from natural gas, a fossil fuel.

The state’s funding has helped create a network of just 65 hydrogen fueling stations, 20 of them in Los Angeles County. Driving a hydrogen car outside of California is virtually impossible: One other public hydrogen fueling station exists in the U.S., and it’s in Hawaii.

The energy commission staff has warned lawmakers that there won’t be enough hydrogen cars on the roads to use new stations already allocated state funds. Stations will triple by 2027 — resulting in four times more than the amount needed to support even the “vehicle manufacturers’ best-case expected volume,” the commission said. They also warned that they haven’t received enough bids from hydrogen station developers to spend all the money the Legislature already has allocated.

“Ten years ago there was a reasonable argument that hydrogen could make up a pretty significant percentage of our zero emission transportation needs,” said Ethan Elkind, director of the climate program at the Center for Law, Energy & the Environment at UC Berkeley Law. “But at this point battery electric has completely dominated the light duty sector, and is looking to dominate on heavy duty, as well.”

An Iwatani station in West Sacramento is one of 65 hydrogen fueling stations statewide.
 Photo by Miguel Gutierrez Jr., CalMatters

In the Legislature, the debate among Democrats is whether hydrogen suppliers should continue to get a substantial amount of money from the Clean Transportation Program — and if so, how much and for how long.

Assembly Bill 241 by Eloise Gómez Reyes, a Democrat from San Bernardino, would designate 10% of the program’s funds — $10 million a year through July 1, 2030 — to pay for hydrogen fueling stations.

Reyes and Sen. Lena Gonzalez, a Democrat from Long Beach, initially tried bills that would have completely eliminated a hydrogen carveout. But they failed to get enough support from fellow Democrats so Reyes amended her bill in June to seek the 10%.

Reyes has not brought the proposal to a vote because some Assemblymembers want more money for hydrogen, while others think that’s too much, so she wants “more conversations with concerned members.”

Gonzalez said she opposes more than the $10 million a year because hydrogen car technology remains unpopular, inefficient and dependent on burning fossil fuels.

“It’s a waste of money,” she said. “They say they’re hydrogen businesses, but they’re really fossil fuel industry businesses.”

Sen. Josh Newman, a Democrat from Fullerton, said hydrogen cars are not competitive yet because they haven’t received the state money they need for fueling stations. “The reason it’s behind is because we haven’t made the appropriate investments,” he said during an April hearing.

“It’s a waste of money. They say they’re hydrogen businesses, but they’re really fossil fuel industry businesses.”

STATE SEN. LENA GONZALEZ, DEMOCRAT FROM LONG BEACH
The success of the funding bill could come down to the votes of several Democrats in the Assembly who expressed concerns to Reyes. Four told CalMatters that they want money explicitly set aside for hydrogen, calling it a valuable, zero-emission technology for cars. But they didn’t include specifics on how much. They are Cecilia Aguiar-Curry of Davis, Jacqui Irwin of Thousand Oaks, Blanca Rubio of West Covina and Carlos Villapudua of Stockton.

Without their votes, a funding bill for the Clean Transportation Program likely won’t pass.

Other legislators say electric cars have left hydrogen vehicles in the dust so they would be misspending the fees paid by California drivers for fueling stations that few drivers will use.

The conflict in the Legislature could jeopardize the future of the program, which is a key source of money for building new charging stations as more people buy electric cars. The program will expire next year if the Legislature can’t agree on a spending plan.

Hydrogen fuel cell cars make up 1.1% of California’s zero-emission cars
For every hydrogen fuel cell car on the road, there were 64 battery electric and 28 plug-in hybrid cars in 2022.

The Clean Transportation Program, created in 2007, has used fees paid by California drivers to invest nearly $1.6 billion in alternative fuels, charging stations and other clean vehicle technologies through March of this year. It’s an essential source of funding for California’s clean car transition given that it’s more consistent than California’s volatile budget.

“The Clean Transportation Program is — not to be too dorky about it — a beautiful market signal,” said Hannon Rasool, director of the Energy Commission’s fuels and transportation division. “It tells folks we’re committed, we’re in it for the long run and here’s a steady amount of funding.”

The program has explicitly set aside money for hydrogen fueling stations since 2013, when former Assemblymember Henry Perea, who now leads West Coast government affairs for Chevron, authored a 20% annual carveout for hydrogen. The goal was to build a network of 100 hydrogen-fueling stations. Gov. Jerry Brown increased that target to 200 by 2025. California Energy Commission staff told lawmakers in presentations that it will meet the 200 station goal by 2027.

The battle among Democrats in the Legislature
Reyes’ original bill would have forced hydrogen developers to compete for program funds directly with those who build electric charging stations, a proposal she called “technology neutral.”

“The truth is hydrogen has made less than an ideal progress in making this market competitive compared to other zero emission technologies,” Reyes said. She added, “I am not anti-hydrogen, especially not in the heavy duty space” and that she was taking all of her colleagues’ concerns seriously.

Since the program raises money through vehicle registration and other fees, the bill needs two-thirds of lawmakers’ votes to be reauthorized. It needs 54 votes out of 80 lawmakers in the Assembly and 27 out of 40 in the Senate.

“If we’re not able to reach an agreement, and it lapses or sunsets, it’ll be almost impossible to get a new bill through,” Reyes said. “So having it reauthorized is extremely important.”

Reyes said the legislators who oppose her proposal include “both individuals who want more dedicated funding for hydrogen, and those who feel that the 10% carve out for hydrogen in the legislation has already gone too far.”

Reyes declined to identify the legislators who want more hydrogen funding or those who want less.

But Melissa Romero, senior legislative manager for the environmental group California Environmental Voters, said at least seven Assemblymembers opposed reauthorization of the program even after the bill included 10% for hydrogen.

Romero’s environmental group supports candidates who seek to reduce California’s dependence on fossil fuels. She worries the clean transportation program might expire, leaving California in jeopardy of not funding the charging stations it needs for electric cars.

The state estimates it will need nearly 1.2 million chargers for battery-powered cars by 2030. Only about 88,000 are now installed.

“How is it that we could have a supermajority of Democrats…and not be able to extend a program that provides funding for zero-emission vehicle infrastructure?’ Romero asked. “That is totally crazy to me.”

Automakers opposed the bill because fees paid by car owners would be used in part to fund fueling stations for trucks.

“The state is nowhere near having the amount of necessary” electric car charging stations, so “it is unfair to place the burden” on car owners for paying for both truck and car stations, the Alliance for Automotive Innovation wrote to legislators in April.

Most large automakers have set goals to convert all of their fleets to battery-powered cars — not hydrogen — but they did not take a stance on the funding for hydrogen stations. Two of their members, Hyundai and Toyota, sell hydrogen cars.

The link between hydrogen cars and fossil fuels
Romero said the influence of the oil and gas industry, which is hoping to transition to hydrogen technology, is a major reason that the Legislature is debating whether to pay for hydrogen fuel stations.

Major oil and gas companies see hydrogen as a potential way for their industry to remain viable in a decarbonized future. Most hydrogen is now produced using natural gas. Some companies are exploring ways of making hydrogen a green energy source by splitting water using renewable-energy electrolyzers. But that technology remains much more costly than today’s process using fossil fuels.

Energy companies are also experimenting with capturing emissions from the natural gas process and then storing those emissions underground. But those carbon-capture techniques are not yet widespread.

While electric cars are also reliant on energy from carbon-emitting power plants, California is greening its grid. Under a state mandate, 100% of electricity must be renewable and carbon-free by 2045, with most coming from solar and wind.

Teresa Cooke, executive director of the California Hydrogen Coalition, said she is disappointed that so few hydrogen fueling stations have been built over the last decade. She attributed the slow progress to the Energy Commission delaying approvals and difficulty with getting the stations permitted.

Cooke said only about 3.5% of all state funding for clean cars has been spent on hydrogen vehicle infrastructure, while battery electric cars have been overwhelmingly favored by state agencies and lawmakers.

She said oil and gas companies deserve the chance to make the shift away from carbon-heavy fuels.

“It blows my mind that there is such resistance to (supporting) the possibility of oil and gas companies transitioning into hydrogen,” Cooke said. “They should be able to transition into a vehicle fuel that can be produced domestically, can be produced renewably and put into a zero emission vehicle and maintain all of the good labor jobs that come with it — full stop.”

Hydrogen support in the Legislature

Among legislators who support a carveout for hydrogen, some have been major recipients of oil and gas industry contributions, while others have not been.

For instance, one hydrogen supporter, Rubio, a Democrat from West Covina, took more campaign money from oil and gas than any Assemblymember other than Republican Vince Fong, who represents oil-rich Kern County, according to a CalMatters analysis of campaign contributions data from The National Institute on Money in Politics.

Rubio has taken $218,399 from the oil and gas industry since 2016, including contributions from Chevron, Valero and ExxonMobil, among others, the data shows.

In a statement to CalMatters, Rubio reiterated a widely cited industry finding that the U.S. hydrogen industry has the potential to create $140 billion per year in revenue and support 700,000 jobs by 2030.

Rubio said in her district — a swath of communities east of Los Angeles — people who drive long distances will likely need more options than electric cars.

“We have a great number of 'super commuters' that drive hours a day to their jobs,” Rubio said. “They can't afford to wait for their vehicles to get charged or gamble on whether they make it to their destination because of limited battery range.”

Irwin, the Assemblymember from Thousand Oaks, said she wants something closer to the 20% share that hydrogen got in past years. She has not taken much money from the oil and gas industry — around $3,100, with most coming from companies representing gas stations, not oil and gas companies.

Irwin said she believes hydrogen has a role to play in transportation, particularly for trucking, and so it makes sense to build hydrogen infrastructure for cars, too.

“We know that hydrogen has to be part of the future for medium-duty vehicles,” Irwin said. “So why not continue to invest in hydrogen stations that can accommodate both medium and light-duty? I think that's a really smart investment that hedges our bets.”

When the proposal was heard in the Senate’s Transportation Committee on April 11, several Democratic senators spoke in favor of maintaining a carveout for hydrogen.

Sen. Bob Archuleta of Norwalk said the technology was important for meeting the state’s climate goals. “We will need more zero emission vehicles options than plug-in alone,” he said. “We've got to combine everything. Hydrogen fuel cell vehicles are complementary.”

Archuleta has accepted $63,186 in campaign contributions from the oil and gas industry. Newman, the senator from Fullerton, has taken $4,000.

Experts say that hydrogen can play other roles in clean energy, including potentially replacing diesel for large trucks and aviation fuels. Hydrogen’s storage potential also is likely to be important as grids rely more on renewable energy. 

California is competing to be named a regional clean hydrogen hub by the Biden administration, part of an $8 billion program. “California is all in on clean, renewable hydrogen — an essential aspect of how we’ll power our future and cut pollution,” Newsom said earlier this month, announcing plans for a statewide hydrogen energy strategy.

But a spokesman for the governor, Alex Stack, declined to say whether Newsom supports a carveout for hydrogen vehicle fueling stations in the Clean Transportation program.

Orville Thomas of CALSTART, a sustainable energy nonprofit, said the state money for hydrogen stations should be used for not just cars, but also medium and heavy-duty trucks.

“Let's make sure that we're being good stewards of that money, “ Thomas said. “Every million dollars is important to make sure California gets to its goals.”

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