E-fuels offer new life for combustion engines, but at what cost?

The European Commission’s decision in late March to allow an exemption for cars running on e-fuels to qualify for sale after 2035 -- when all new vehicles must be zero-emission -- has given the internal combustion engine a new life in Europe.

But do the fuels, which are processed from water and carbon dioxide, come at too great a cost? 

Critics say e-fuels are an expensive distraction from the transition to electrification, which they say offers a much greater return on investment if the goal is to reduce greenhouse gases. They say that e-fuel production will divert sustainable wind and solar energy from more pressing uses, and that combustion engines running on e-fuels still produce pollutants such as nitrogen oxide and carbon monoxide.

Supporters say they can be a “plug and play” way to decarbonize the hundreds of millions of internal-combustion engine cars on the road, as well as other forms of transportation such as shipping and aviation. They say that cars running on e-fuels can have a similar carbon footprint to EVs using a holistic life-cycle assessment. 

It’s not yet clear what e-fuels regulations will look like or when they could be finalized, but the move has complicated the industry’s multibillion-dollar march toward full-electric vehicles, which looked all but inevitable just a few months ago.

Prominent backers in the automotive industry include sports-car makers Porsche and Ferrari, which see them as a way to continue selling their iconic internal combustion engines such as the Porsche 911’s flat-six and the Ferrari V-12. Porsche has invested heavily in a pilot e-fuels plant in Chile with Siemens and energy companies.

“I know no other possibility to decarbonize combustion-engine cars,” Porsche and Volkswagen Group CEO Oliver Blume said in March at the group’s annual results conference. 

“This is very good for us, because you can run a thermal car with a fuel that is (carbon) neutral," Ferrari CEO Benedetto Vigna said in May.

But it’s not just exotic cars that may benefit from e-fuels. Following the EU’s decision, the CEOs of Stellantis and Renault said they could be a valid solution to decarbonize existing internal combustion engines, although they stopped short of explicitly endorsing their use after 2035 in new cars.

“It's good news, but not only good news for Ferrari and Porsche,” Renault Group CEO Luca de Meo said in May. He said the group’s Dacia brand would seek to switch to electrification “as late as possible,” agreeing that e-fuels could be a way to decarbonize Dacia’s affordable cars with internal combustion engines. Renault is working with Saudi Aramco, its partner in a planned combustion-engine venture, to develop e-fuels.

Stellantis in April said it was completing testing of e-fuels on a range of engine families from 2014 to 2029, although noting that it was “remaining committed” to selling only battery-electric vehicles in Europe by 2030.

“By working to make sure our Stellantis engines are e-fuels friendly, we are aiming at giving our customers another tool in the fight against global warming,” CEO Carlos Tavares said in a news release.

The EU’s move to allow cars running on e-fuels dismayed critics.

“Losing focus away from electrification of road transport risks diverting resources and delaying scaling up of battery electric vehicles,” the environmental group Transport & Environment wrote in a report on e-fuels in 2021.

William Todts, the executive director of T&E, wrote in March that the “e-fuels lobby’s backers, mainly the oil industry, are not looking for a fair contest between e-fuels and electric vehicles -- they are looking to derail mass electrification.” 

The e-fuels lobbying group, the E-Fuels Alliance, says that is not against electrification, but that e-fuels can be produced in a truly sustainable way, and that their current high cost will come down if there is a market for them.

Ralf Diemer, the managing director of the E-Fuels Alliance, a lobbying group that counts some 180 members, including 12 to 15 that are directly involved in the auto industry (Porsche joined at the end of May), as well as energy companies, says that e-fuels make more sense if a more holistic measure of a car’s carbon footprint is adopted -- a so-called “cradle to grave” approach.

“The question of how the steel for a car is produced is as relevant as the kind of fuel the car uses,” he said told Automotive News Europe. “This has to be done, otherwise we will not reach our climate goals.”

Diemer called a cradle-to-grave approach the ultimate target, but he says a modified “well-to-wheel” measurement of fuels that includes how a fuel is produced would also help narrow any gap to batteries.

“Decarbonization should not be a zero-sum game,” he said.

Diemer acknowledged that currently e-fuels are too expensive for widespread use, but he said the price would come down with scale and the development of renewable energy sources in places such as Chile with abundant wind or sunny climates. Lowering taxation rates on e-fuels versus fossil fuels could also help, he said.

The production of e-fuels is a multistep process: In the first step, an electrolysis process passes an electrical current through water to break it into its component molecules of hydrogen and oxygen. Ideally, electrolysis is powered by renewable energy sources such as wind or solar (similar to so-called “green” hydrogen technology).
 
In the second step, hydrogen molecules are combined with carbon dioxide to create the e-fuel in liquid form that can be stored or transported like gasoline or heating oil. 

The CO2 used in the process can be captured from the air or from plants that burn fossil fuels, and different sources have different effects on an e-fuel’s carbon footprint, with captured CO2 from industrial processes potentially balancing out emissions when the fuel is burned, although critics say that technology is not yet fully mature. 

E-fuel can then be refined and used as gasoline, diesel, heating oil, aviation fuel, liquid natural gas or kerosene. (E-fuels are different from biofuels, which are generated from biomass such as sugar cane, corn, algae or waste.) 

There is not yet a way to forecast the eventual size of the e-fuels market, Diemer said, but energy companies such as Aramco are heavily involved in their development. Many already operate in regions with abundant sun and wind -- think the Saudi Arabian desert -- and few people, making huge wind or solar farms more feasible.

In addition, they may also see e-fuels as key part of their business in the future, as demand and supply of fossil fuels shrinks, experts said.

In fact, Diemer said, e-fuels production could help Europe diversify its energy supply from sources such as natural gas from Russia, even if the European climate is not favorable for solar or wind and it means importing e-fuel by tanker ships (a sore point for critics). 

"When it comes to renewables, we have to think completely differently,” he said. “We can bring in partners that are politically more leaning toward our thinking." 

In e-fuels’ favor is their compatibility with current and future internal combustion engines. In addition to Stellantis, Renault has also completed compatibility testing with fuels from pilot plants, Gilles Le Borgne, Renault Group’s chief technology officer, told Automotive News Europe. 

"We know the advantages; we have done our life-cycle analysis," he said.

"It’s just a tuning matter, it's not a problem of hardware," he added. "The bottom line is that they are 'drop in.' "

Le Borgne said that e-fuels made sense if the EU adopts a “cradle-to-grave” approach to evaluate a car’s carbon footprint rather than a tailpipe emissions, or “tank-to-wheel,” focus. That would include the energy used in making steel or aluminum, any EV batteries and the assembly process, as well as to generate fuel (whether renewable or fossil fuel) and fuel usage. 

"If you have a 150 kilowatt-hour battery [in an EV], you have a big amount of CO2 to reimburse from Day 1," he said. "If you recognize cradle to grave for e-fuels then you could be ahead; if not then it does not make sense as a solution."

The chief stumbling block for e-fuels comes down to allocating scarce resources -- in this case, renewable energy and investments in EVs. 

“The process of producing e-fuels is only viable under the precondition that green energy is available in surplus and in abundance,” Peter Fintl, a vice president at the technology consultant Capgemini Engineering, told Automotive News Europe.

Even then, Fintl said, electrification is much more efficient. The process of creating e-fuels is itself energy-intensive, and internal combustion engines are much less efficient at turning energy into forward motion than electric motors.

"If you take a kilowatt of electricity from an EV, let us say from source to wheel, it's always around 75 percent of the energy that propels the vehicle. If you look at e-fuels, it's maybe 10 to 15 percent at best,” he said.

Germany's largest auto club, ADAC, recently released a chart showing how many vehicles could be powered by a three megawatts wind turbine per year: 1,600 EVs; 600 fuel cell vehicles; and 250 internal combustion cars running on e-fuels. 

In Fintl’s view, the development of “green” hydrogen -- which could be used in fuel cell vehicles and a host of other uses -- is a better use of renewables. 

“For every thousand euros you spend on e-fuels development you are missing that budget in other areas. In the end, electrification is cheaper, more efficient and just better,” he said.

The current cost of e-fuels is out of reach for most potential users, even supporters acknowledge. But they say that will come down with scale, and potentially a helping hand from lower taxes.

"If we tax green fuels lower than fossil fuels, this will open up business cases,” Diemer of the E-Fuels Alliance said. “Right now, e-fuels are ridiculously expensive simply due to the fact that they are not produced on an industrial scale." 

The next move on e-fuels is up to the European Commission, which has promised to create an exemption for their use in its 2035 regulations mandating that all new cars sold be zero emission. 

"We have the unique opportunity to adjust the regulatory framework in Europe to enable and support the industrialized production of e-fuels," Diemer said.

According to a document seen by Reuters earlier this year, the EU plans to create a category for cars that can run only on carbon-neutral fuels. It will then present a regulation showing how these cars could contribute to the 2035 target.

Even once regulations are in place, it’s still unlikely that e-fuels will make up a significant part of the European market after 2035. As a practical matter, the vast majority of e-fuels will probably go for aviation use, which is generally not suitable for electrification, a report from LMC Automotive said. 

“The aviation sector’s hunger for e-fuel would not be satisfied for a very long time -- there will not be lots of spare e-fuel looking for a home in the light vehicle sector,” LMC said.

Even so, if conditions come together, analysts and supporters say, e-fuels could play a small but important role in decarbonizing the internal combustion-engine more than 150 years after its invention.

“This is the only solution to decarbonize the existing, legacy fleet that we have,” Renault's Le Borgne said. “You are not going to convert internal-combustion cars to battery electric vehicles."