Hydrogen does not need to be extracted from fresh water. In Freeport, Texas, Dow has been powering its chlorine plant with fuel cell engines. The hydrogen is a byproduct of producing chlorine from sea water. And you don't need to drain the town reservoir to get decent quantities of hydrogen.
I said in my last post that a straight up electric battery is the better way to go for passenger vehicles. Israel is working to have 500,000 charging stations and 200 battery exchange stations ready by 2011. Renault will then sell a very cheap electric car to Israelis. Electric cars are affordable and ready for market. Hydrogen fuel cell cars are not. Technology may one day make hydrogen fuel cell cars practical, though.
For heavy equipment and transport, you do need fuel cells or hydrogen burning engines.
Whether it is a fuel cell or lithium ion battery, the carbon problem is not solved. It is just tranferred. You still have to produce energy to produce the hydrogen or charge the battery. If you use renewables (wind, solar, hydro, geothermal), you solve the carbon problem.
Cost effective? When you look at energy as simply another consumer product like tennis balls or candy bars, it is not cost effective. Coal, natural gas and oil will be more cost effective for quite a while until production of each peaks (in reverse order). But if you view energy as national security and a social issue, then the extra cost is hardly worth a thought. We can spend billions investing in a renewable energy infrastructure and have clean energy that will be there for generations. Or we can spend billions to keep our military engaged in the Middle East, pay billions in health care costs associated with burning fossil fuels (ever go for a run when there is an ozone alert?), and there are billions in environmental damage caused by fossil fuels (just today a tanker opened up and spilled piles of fuel in the Mississippi).
The cost comparison between renewables and fossil fuels just isn't a fair fight because the cost of the military, environment and health/safety (I forgot all the injuries to workers in the coal and oil industry) are not reflected in the price at the pump. If they were, renewables may very well be cost competitive.
And conservation must be part of the solution. Renewables cannot produce as much energy as oil, gas and coal. Thus, we cannot continue to be the energy pigs we are. Through strong conservation measures, the Japanese consume half the energy per capita than we do in the US. And the Japanese live well. There is no reason we can't do the same.
Massive public investment and extensive conservation could make it possible to convert to carbon free energy. But people have billions invested in the carbon energy market. They aren't going to give up their investments without a fight. However, after another more severe oil shock, people will start to see that there is no future in carbon.