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What’s holding back commercialization is cost. A diesel-powered car in Europe already costs $1,750-2,400 more than an equivalent gasoline model, and PSA estimates that making a diesel hybrid could double that premium. Hence, PSA says controlling costs will be a challenge, but it is starting to engineer cost-shaving solutions.

PSA hopes to secure funding from the French government’s newly formed Agency for Industrial Innovation to create a consortium of manufacturers and research labs dedicated to slashing the cost of producing its diesel hybrid. French President Jacques Chirac last month endorsed that goal, but funding is still up in the air.

Meanwhile, Renault, PSA’s domestic rival, is one of the last hybrid holdouts. Renault partner Nissan is licensing Toyota’s hybrid system to produce a gas-electric hybrid version of its Altima sedan next year, but neither Renault nor Nissan has committed fully to the technology. At the Tokyo Motor Show last fall, Carlos Ghosn, CEO of both companies, called the hybrid a serious technological option, but also warned that the industry “must be careful not to impose expensive solutions until consumers are ready to adopt them.”

What’s clear is that diesel hybrid technology has significant potential. According to a 2003 study by MIT’s Laboratory for Energy and the Environment, a study that remains one of the most comprehensive projections for propulsion technologies, diesel hybrids should outperform nearly all other propulsion technologies through 2020 – including fuel-cell cars that run on hydrogen derived onboard from gasoline. Fuel cells using pure hydrogen offered a marginal benefit in efficiency, but only when combined with hybrid technology, and at a significantly higher price. Other research programs have demonstrated that diesel hybrids can deliver efficiencies of 80 mpg and up.

If diesel hybrids do succeed in Europe, could they make it in the United States? Until recently, that would have seemed unlikely. With diesel’s dirtier fuel and with tighter U.S. pollution controls, diesels have been a tough sell stateside. Although they account for half of all cars sold in Europe, that figure is just 3 percent in the U.S. market.

But diesel’s fortunes could improve quickly in the United States. Federal regulations mandate the phasing in of cleaner diesel fuels starting this year. And pollution controls such as particle filters are getting cheaper, as they become standard equipment in Europe (PSA alone has placed more than one million filters on its European diesels). Clean diesels that employ such devices may qualify for the same federal tax credits that make hybrid cars a good buy in the United States.

Anthony Pratt, who tracks hybrid vehicles markets as senior manager at Global Powertrain for J.D. Power and Associates in Westlake Village, CA, says he anticipates that hybrid diesels will hit the U.S. market after 2009, but have a limited appeal because of their higher price tags. “This technology will likely be utilized in a luxury brand with a high base price,” Pratt says. “Luxury buyers have more disposable income and will not be looking for an economic payback from the vehicle.”

Peter Fairley is a Technology Review contributing writer based in Paris.

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