German car makers welcome EU deal to allow e-fuels in new ICE cars after 2035

Germany's car industry welcomed March 27 a deal between the government and the European Commission over the use of synthetic fuels, or e-fuels, that stymied the EU's hopes of ending sales of new gasoline and diesel cars by 2035.

EU Commission Vice President Frans Timmermans announced a deal over the future use of e-fuels in cars on March 25. German government officials said the compromise allows for internal combustion engine (ICE) cars to be still sold after 2035 if they fill up exclusively with CO2-neutral fuels.

Earlier this month, Germany said it would only back a new EU law on CO2 emission standards for cars and vans if Brussels mapped a path for e-fuels that can be used in ICE engines after 2035. Italy, another major European car maker, had already opposed the 2035 de-facto ICE car ban, and Czechia had also joined in the opposition.

Although not yet produced on a commercial scale, e-fuels combine green hydrogen made from renewable sources, water and captured CO2 to form an alternative to bio-derived liquid fuels such as biodiesel or ethanol. The resulting e-fuels -- such as e-diesel, e-kerosene, and e-methanol -- can be blended with conventional fuels and used as drop-in alternatives in existing internal combustion engines. As a result, they are attractive to both car makers and integrated oil companies with billions of dollars invested in retail fuel networks.

"Electric mobility remains the central technology for achieving the climate targets in transport," Hildegard Müller, head of Germany's automotive industry association VDA said in a statement.

"E-fuels, however, represent an important extension of the options," she said.

EU policymakers had previously sidelined e-fuels from new vehicle emission rules over their questionable environmental credentials and much higher costs of production.

The EU's U-turn on e-fuels comes just a month after Timmermans decried the use of e-fuels in cars saying "We should not use them for road transport in any way or form."

S&P Global Commodity Insights analysts estimate that plug-in electric vehicles will displace about 1.4 million b/d of gasoline and diesel demand in Western Europe by 2035, rising to around 2.1 million b/d in 2040.