China’s nascent hydrogen and fuel cell vehicle industry may finally see the introduction of a national subsidy policy, which has been long overdue.
In early May an alleged policy draft issued by the Ministry of Finance has been circling in the industry. The policy draft set that the national regulators would select a group of cities or regions to be the country’s demonstrative regions to kick start fuel cell vehicle (FCVs) and H2 infrastructure development.
Beijing would provide financial rewards to the chosen demonstration regions, which are required to achieve a set of FCV market development targets.
If true, the policy would be China’s first “subsidy” design on a national level for hydrogen energy and fuel cell vehicles.
The policy push from Beijing would inject new momentum to the industry, which experienced some setbacks in 2019 due to the uncertainty of Beijing’s national financial incentive design.
China’ Fuel Cell Vehicle Subsidy Policy on the Way
The subsidy policy draft was issued on April 29 by, allegedly, the Ministry of Finance. The document (429 Draft) circles around the industry in Chinese social media channels. But right now no official release or confirmation regarding the accuracy of the draft.
Still, Energy Iceberg considers the draft highly likely to be Beijing’s initial version for an upcoming and finalized FCV subsidy design, which has been long-awaited and expected.
The 429 draft comes just days after MoF’s official release of a new promotion policy (MoF No.86 Notice) for the new energy vehicle sector as a whole. While the notice mainly addressed subsidy standards for electric vehicles, it also mentioned to soon introduce a “financial reward” mechanism to the nascent FCV sector. [Read More on the Summary of No.86 Notice for EV.]
The key principle set by No.86 Notice for FCV subsidy is to “replace subsidy with financial reward.” And the 429 Draft has proposed a design perfectly in line with that principle:
“(China) will replace the current direct subsidy support mechanism for purchasing FCVs. Instead, (the central government) will select and provide financial rewards (instead of subsidies) to cities or regions as FCV demo regions. The rewards will focus on R&D of the critical (fuel cell or FCV) parts and industrial applications. The chosen demo area should have proper (H2 and fuel cell industrial) foundation, with strong motivation and features for FCV development.”
“The reward mechanism hopes to see the demo cities to establish H2 and FCV value chain and make breakthroughs on critical technology in four years.”
The parallel of subsidy design principle suggest the 429 draft is of high probability to become a finalized version soon. The national FCV stimulus policy may be soon to launch, Energy Iceberg expects.
Highlights of the Fuel Cell Vehicle Subsidy Design
We want to highlight six key points in the 429 subsidy policy draft:
- “Reward instead of Subsidy” Principle: like No.86 Notice, the new policy proposed to provide financial rewards to local governments that are chosen to be the pilot regions.
- Reward on Local Governments Instead of FCV Consumers: unlike current EV or FCV local subsidies, the new policy sets to provide fundings to local governments, who shall promote FCV development and meet Beijing’s requirements (with a scoring system)
- Detailed Tweaks are Still Expected: As the draft is a feedback-inviting version, there would be adjustments on the detailed scoring measures.
- Eight Likely Demonstrative Regions: eight provincial governments have received the feedback asking draft, which are Beijing, Shanxi, Shanghai, Jiangsu, Henan, Hubei, Guangdong, and Sichuan. The first patch of demonstration regions is most likely to come from these eight provinces.
- Not a Strong Emphasis on “Green H2”: notably, the scoring system of the design also put requirements on the local “low-carbon and high efficient” H2 supply capacity. However, the scope of “low-carbon” H2 is not fully defined yet. Also, the score of gas supply capacity only takes up a small part of the total scores. Then the coal-heavy Shanxi province was enlisted (in 2nd place) for the potential demonstrative region. These details suggest that the usage of green H2 is not Beijing’s main policy focus.
- An FCV Version of Beijing’s “10-City-1000-EV” Policy: the FCV subsidy design parallels Beijing’s 2009-2012 subsidy policy for EVs. While the results of the former “10-city-1000-EV” had been far from ideal, most cities failed to achieve the designated targets. The new FCV subsidy design appeared to adopt new measures—i.e. rewards based on cities’ score instead of the number of vehicles, but whether the new model could effectively avoid the previous issues remain to be seen.
Policy Priorities Suggested in Fuel Cell Vehicle Subsidy Scoring System
MoF has attached a scoring system in the draft for the demonstrative regions. The scoring criteria showcased Beijing’s current priorities and consideration regarding FCV development:
The scoring setup does not solely focus on FCV adaptation. It has taken into consideration and add targets of the actual operation or performance of the FCVs.
Meanwhile, H2 infrastructure development is one of the concerns. The policy also urged local governments to develop gas production and transportation facilities.
Finally, technology breakthrough has always been Beijing’s industrial policymaking focal point. The tech and industrial application are the central elements in the scoring system.
Energy Iceberg Comments on the Draft
- a choice between reward or subsidy: the “rewards for scores” mechanism suggest the MoF plans to, at this stage, adopt a cautious approach to promote FCV market development. The new subsidy arrangement is significantly different from the direct subsidy setups embarked in other clean-tech sectors (in renewable power, or EVs).
- the reward system may risk of an inefficient result, as the financial reward maybe not enough to support a wholly new industry to kick-start, as the previous EV policy suggest. But it will, indeed, avoid some past issues like the subsidy cash-pool deficit occurred in China’s solar and wind development due to a higher-than-expected exponential growth.
- local governments have been empowered in this setups to promote H2 development. The benefit of such policy setup is to provide space for local rulers to design different “games” to stimulate progress. It also, potentially, spur competition among the regions. However, a potential downside is a strengthened regional market barrier, by which each local government inclines to develop separate value chains. Similar regional pilot schemes had often run into inefficient issues.
- again, sustainable H2 has yet to be the focal policy concern. Conventional H2 production still has ample room in this new energy push.