Calibrating the social value of prospective new goods: The case of hydrogen fuel cell electric Vehicles

Economic studies of the value of a new good or product innovation are typically retrospective: after a new good has been developed and marketed to consumers, data on prices and consumer choices can be used to estimate welfare gains. This paper calibrates the prospective welfare gains in the United States from a nascent vehicle platform, fuel cell electric vehicles (FCVs), that may or may not succeed in competition with existing vehicle platforms. Prospective gains are due to three main sources: (1) possibly reduced carbon emissions compared to existing vehicle alternatives; (2) the monopsony benefit to the U.S. from reducing world oil demand and hence the price of oil; (3) national security benefits due to reduced “oil dependence”, mitigating the impact of oil price shocks on national income. I find that the benefits of reduced carbon emissions are likely to be quite small because reduced oil demand in the U.S. as only a small impact on world oil consumption and carbon emissions. Net monopsony benefits to U.S. consumers are much larger.