A fresh political battle is brewing over the potential for hydrogen-based synthetic fuels, or e-fuels, to help decarbonize the transport sector after Europe's biggest car market and economy threatens to sink the EU's hopes of ending sales of new gasoline and diesel cars by 2035.
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In a last-minute U-turn, Germany last month said it would only back a new EU law on CO2 emission standards for cars and vans if Brussels maps a path for e-fuels that can be used in existing internal combustion engines after 2035. Italy, another major European car maker, has already opposed the 2035 de-facto ICE ban, and Czechia has joined in the opposition.
Germany's demands present an acute political hurdle for the EU policymakers who had sidelined e-fuels from the new emission rules over their questionable environmental credentials.
Holding up the EU's plan for all cars and vans sold in the trade bloc to have zero CO2 emissions by 2035 has implications for the region's oil demand.
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.
Distinct from bio-derived alternative liquid fuels such as biodiesel or sustainable aviation fuel (SAF), the new breed of e-fuels combines green hydrogen made from renewable sources, water and captured CO2. 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.
But most energy analysts agree that electrifying cars directly using batteries is by far the most efficient zero emissions pathway to decarbonize cars and light-duty transport.
Driving e-fuel-powered cars require up to five times more renewable energy than when driving a battery electric vehicle, according to a 2022 study by EU-based environmental advocacy group Transport & Environment. With far higher production costs than conventional fuels and renewable power, it warned the EU was at risk of making an "untenable tactical blunder" by allowing e-fuels in its CO2 car standards "by misallocating green electrons".
E-fuel detractors also say e-fuels will divert significant green investment flows away from more efficient electric cars, delaying the electrification of road transport where it is needed most.
Indeed, European Commission Vice President Frans Timmermans decried the use of e-fuels in cars as recently as last month. Acknowledging that e-kerosene could play a role in the aviation sector, he said: "We should not use them for road transport in any way or form."
The eFuel Alliance, a Berlin-based industry lobby group, claims that e-fuels can be a CO2-neutral alternative to conventional fossil energy but that the required economies of scale and cost reductions are being hampered by political opposition in Brussels. E-fuel proponents also claim that the cost hurdles of making synthetic fuels can be partly overcome by importing hydrogen or finished e-fuels produced in regions where there is abundant solar or wind energy such as North Africa. But additional freight costs, emissions, and energy losses associated with transportation would only weaken the case for e-fuel further, according to naysayers.
In lieu of a political compromise in Brussels over Germany's opposition to its new CO2 car standards, the future of e-fuels in transport appears closely allied to the ongoing debate over the potential for green hydrogen to displace liquids fuels across the broader transport sector.
Despite widespread environmental hopes for a major role for hydrogen-based fuels to displace oil under pathways to hit the Paris climate accord targets, many industry watchers are tempering their expectations for hydrogen in the future energy mix.
S&P Global analysts expect global hydrogen demand to grow by 148 million mt by 2050 over current levels of about 78 million mt, which are made almost entirely from fossil fuels. But only a fraction of the total growth will likely go to meet fuel demand for light-duty vehicles (LDV). S&P Global analysts forecast that hydrogen will provide just 1.9% of LDV fuel demand by 2050, with larger roles in the trucking and marine sectors.
"Hydrogen is not expected to gain a significant share of global energy demand but is instead forecast to offer an answer where other decarbonization solutions such as electrification are not viable," S&P Global energy analysts said in a recent hydrogen report.
Other energy analysts are even more skeptical of the broader role of hydrogen-based fuels to displace conventional oil-derived fuels.
Speaking at the International Energy Week in London last week, Michael Liebreich, the founder of what is now Bloomberg New Energy Finance, said energy losses, transport issues, leakages, and high costs mean only "homeopathic quantities" of liquid hydrogen will be used in the global energy system in the coming decades.