Decarbonization with Induced Technical Change: Exploring the Niche Potential of Hydrogen in Heavy Transportation

Fuel cells and electric batteries are competing technologies for the energy transition in heavy transportation. We explore the conditions for the survival of a unique technology in the long term. Learning by doing suggests focusing on a single technology while differentiation and decreasing return to scale (cost convexity) favor diversification. Exogenous technical change also plays a role. The interaction between these factors is analyzed in a general model. It is proved that in absence of convexity and exogenous technical change, only one technology is used for the whole transition. We then apply this framework to analyze the competition between fuel-cell electric buses (FCEBs) and battery electric buses (BEB) in the European bus sector. There are both learning by doing and exogenous technical change. The model is calibrated and solved. It is shown that the existence of a niche for FCEBs critically depends on the speed at which cost reductions are achieved. The speed depends both on the size of the niche and the rate of learning by doing for FCEBs. Public policies to decentralize the socially optimal trajectory in terms of taxes (carbon) and subsidies (learning by doing) are derived.