Auto, Gas Companies Mull Fuel Cell Technology

The most fuel-efficient cars that Americans can buy right now are called hybrids (search). They combine gasoline engines with battery power to extend the mileage and reduce dependence on gas.

But even more efficient vehicles are just over the horizon — and they would run on hydrogen fuel cells (search).

Hydrogen is a cleaner way to operate a car because it does not use gasoline and the exhaust is water. The dual benefits would be less dependence on foreign oil and cleaner air.

The goal is "taking the automobile out of the environmental equation while removing our dependence, lessening our dependence on foreign oil," said David Garman at the Department of Energy.

In his State of the Union (search) address nearly one year ago, President Bush announced that he wants the United States to lead the way in building the hydrogen-powered automobile. He proposed $1.2 billion in research funding.

But that's not enough to get the job done, say auto and gas industry representatives who are enthusiastic about the project, but question whether they can afford to foot the bill.

General Motors (search) has already introduced a prototype that puts the fuel cell at the back of the car and the hydrogen storage under the vehicle. The steering wheel would be more like the throttle of a motorcycle.

"We plan and hope to be able to put out our first vehicles around 2010, but that's dependent on a number of things," said Byron McCormick, executive director of fuel cell activities at GM.

One of those factors is the availability of hydrogen filling stations.

"If we put out vehicles in a showroom, we have to have the refueling capability," McCormick said.

In enters energy giant Shell (search), which estimates the cost of retooling an existing gas station to pump hydrogen at more than $400,000.

At that price, Shell officials say converting just a quarter of its filling stations would cost a small fortune.

"We are looking at a number on the order of $19-20 billion," said Phil Baxley, vice president of Shell Hydrogen. "How do we go about building that in a way that doesn't overexpose us, in a way that is acceptable to us financially?"

GM and Shell have teamed up with the U.S. Department of Energy on the hydrogen car project, but they say federal tax breaks are necessary.

"I do think there will be a point in time where the government has really got to kick into gear," McCormick said.

Baxley and McCormick said that some sort of tax relief will be needed, either to give consumers incentives to make buying a hydrogen car attractive or giving companies some tax breaks in order to offset early infrastructure and development costs. Without them, America is at risk of falling behind in this new technology and will find itself importing hydrogen vehicles from somewhere else, Baxley said.

Importing the hydrogen fuel to run the new cars is exactly what the Bush administration hopes to avoid.

Garman said the president is enthusiastic about the prospect of hydrogen-run vehicles. But the project's becoming a reality may depend on whether or not President Bush and Congress decide that adding the projected costs to the federal budget will give U.S. taxpayers a bad case of sticker shock.

Fox News' Steve Brown contributed to this report.