By David Whitford; Geoffrey Ballard

(FORTUNE Small Business) – Every job I ever had, people always seemed to want to think small," says Geoffrey Ballard by way of explaining why he went into business for himself. The 70-year-old Canadian engineer--whose efforts to promote vehicles powered by zero-emission hydrogen-based fuel cells have earned him such accolades as being named a Hero for the Planet by Time magazine--is on his second company, having co-founded General Hydrogen in 1999. His earlier venture, Ballard Power, built the first commercially available fuel cell before going public in 1993. (It also gained worldwide recognition for giving rides on the first hydrogen-powered bus.) At General Hydrogen, Ballard's mandate is broader: to work with other companies to help build an infrastructure for what he refers to as the coming "hydrogen economy."

What does he mean by that phrase--and what are its implications for all businesses? FSB editor at large David Whitford talked to Ballard at his Vancouver headquarters and learned why, among other things, your garage is the last place you can expect to see a hydrogen-fueled car.

Here it is 2003, and we're still looking for the first fuel-cell-powered automobile. How much longer do you think we will have to wait?

I said this years ago and I see no reason to change my mind: The family-owned, garaged vehicle is the last vehicle that's going to get a fuel cell. Fuel cells are still 30 times the cost of what they need to be for the automotive market. We will need to have huge experimental fleets, where we will put hundreds of people in controlled environments and see what they do with these vehicles. Are people going to be buying them and taking them apart to see how they work? What sort of problems are we going to create? I doubt that I will ever see a hydrogen car for personal consumption in a showroom. But I am certainly going to struggle to stay alive long enough to see the fleets change--army vehicles, taxis, trucks and rental cars.

Are the big car companies getting any closer to production capability?

Each is in what I would call a project mode. Every single one of them has some sort of significant project to begin to teach themselves about automobiles powered by fuel cells and how all this might come about. But projects are not programs. A program at GM is when they say, "Okay, it's a certain size vehicle with certain characteristics, there are this many sales available, we designate this plant to manufacture it, and we will spend a billion dollars in retooling." Nobody has a fuel-cell program. Basically, it's a Catch-22. You cannot sell vehicles to people if they can't go fill up with hydrogen. And you can't persuade a fuel-distribution company to provide thousands of hydrogen-fueling stations unless there are vehicles to use them.

Given that, how do you jump-start the hydrogen economy?

You don't bring about massive changes in consumer behavior with legislation. It won't work. You legislate HOV [high-occupancy vehicle] lanes on the highway and they're empty. I really believe in an economic basis for change, without massive government support or tax rebates or anything else. At General Hydrogen, we're saying, "Okay, you want to introduce the hydrogen economy? You want distribution channels and things like that? Well, who can benefit today, at the present cost structure of fuel cells? Who has a need that is sufficient? Who has a market niche where it pays to enter the hydrogen economy?"

And you've identified some of those niches?

We see the early-stage applications as anything that replaces a lead acid battery. Battery-powered forklifts, for example, can run much more efficiently on hydrogen. They're very heavy; right now they run out of power in four hours. But you can run them on fuel cells for a full 24 hours and refuel them in one minute. We're aiming to sell them into the bigtime distribution centers, of which there are about 500 in North America. We think we can provide significant productivity gains that will compensate for the higher initial cost. From there the technology can migrate into the trucks that supply the distribution centers, and the delivery trucks, and on and on, debugging along the way and working out the safety issues in a controlled environment. Then as manufacturing lines get built up, the price of fuel cells will come down. Each step will open up new niches--golf carts, wheelchairs, sailboats-- at specific cost points. The exciting entrepreneurial game will be to pinpoint when markets become economically feasible. As they do, and as still more fuel cells are sold and the price comes down even further, the next niche opens up. Boom, boom, boom.

Meanwhile, the internal combustion engine keeps on chugging. Do you believe we have time to complete a gradual transition to hydrogen before we're faced with an ecological disaster?

An ecological disaster, yes. But serious medical problems, probably not.

What exactly are the medical issues?

The studies are indicating very strongly that we're perpetrating a disaster on the children of the inner city. There's going to be a huge hue and cry as the data become more widely known; as these children grow up and find they have asthma problems, lung problems; as the medical bills start rolling in, and people have to go on welfare because they're unable to work. If there's one country where you don't want to kick its children, it's the U.S. I think we're going to see class-action suits against the car companies that are going to make the tobacco industry's problems look like a cakewalk. As far as I can see, the automotive companies have recognized this and are making great efforts to put fuel cells in cars so they can be considered part of the solution and not part of the problem.

But global warming doesn't worry you as much?

I believe global warming has been falsely presented to the public. The implication of the extreme environmentalists is that if we cleaned up all of our emissions, global warming would cease. That's a bunch of hogwash. We're in an interglacial period; the earth is warming up. Man may be making a contribution, but if man stops contributing, it is not going to reverse global warming or even necessarily make a perceptible difference. There is, however, a direct correlation between energy consumption and social progress, and that could cause huge problems in the future. You use a hell of a lot more energy when you're trying to improve the standard of living. And if you look at bringing the 88% of the world that does not have access to automobiles onboard with the same standard of living we have, and you consider how much energy would have to be consumed to do that, and you require that energy to come from coal and oil, then you are going to do damage that Mother Earth cannot absorb. There's no question about that.

What about the environmental costs of generating enough hydrogen to power fuel cells?

People say it will cost as much energy to make the hydrogen; you're just transferring the pollution from one place to another. That is a true statement, but it has no meaning in today's ecology. The real problem is that you can't run along behind the back of an internal combustion engine with a bag and collect the effluent. So if you provide that car with fuel that doesn't produce any effluent, you're moving the pollution problem to a central location where you can put some engineers on the job and do something about it. That's step No. 1.

And the second step?

Step No. 2 is, as you do this, you gradually reduce your dependence on the carbon-based fuels and move more toward nuclear. And as you move toward nuclear you develop things such as [nuclear waste repository] Yucca Mountain. What finally sold Yucca Mountain in the U.S. was the realization that there is an awful lot of energy in that waste that someday is going to be reclaimed--so-called spent fuel that can be refined to make more fuel that can be used in nuclear plants. Here you have accessible shafts, segregated ores, you're ready to go. I think Nevada has made a very wise choice about its economic future. It will probably make more money out of Yucca Mountain than it ever did out of Las Vegas.

What are the homeland security implications of switching to a hydrogen economy?

Four percent of the vehicles in California--if they were fuel-cell vehicles--would represent more generating capacity than do all the power plants in the state. It's impossible to escape the conclusion that one day the majority of the electrical generating capacity of a nation is going to be in its mobile fleet. Say I have an office building that's got a lot of computers in it. Instead of buying an expensive backup power system, I'll have ten free parking spots where I'll say, "As long as you park here, you must plug in. If you plug in, you've given control of your vehicle to me. I promise never to use more than 25% of the hydrogen in your tank and I'll pay you for it if I use it." All of a sudden you have an instant backup power system, and the generating capacity is free. From a terrorist point of view, how do you knock out 25 million automobiles in California? It doesn't matter how many grids you drop, it doesn't matter what you blow up. Cars can still plug in and you can power up in a matter of minutes. The whole world changes the minute you go to a 100-kilowatt fuel-cell engine in an automobile.

So you're trying to change the world?

Every job I ever had, people always seemed to want to think small. They seemed to feel somehow as a human being that you could tackle only this much [holding his thumb and index finger an inch apart]. I guess I thought from the very beginning that you don't have to think like that. It doesn't take any more energy to think worldwide. So it was very important for me to become an entrepreneur. This "outside the box"--heavens! I just wanted to make the box big.