Political decisions this year mean fuels derived from captured CO2 are classed as carbon neutral and now have a future on Europe’s roads. But will it be a highway or a just a byway for the start-ups currently building the e-fuel industry?
The decision by EU leaders to allow new cars running on fuels derived from captured carbon dioxide to be sold beyond 2035 was a coup for the auto industry. But opinion is divided over what this means for Europe’s electrofuels (e-fuels) ecosystem, which is largely driven by start-ups and scale-ups.
E-fuels are direct substitutes for conventional fossil fuels such as petrol, diesel and aviation kerosene. To classify as carbon neutral they must be made from hydrogen generated by electricity from renewable sources and carbon dioxide captured from the atmosphere. Although this carbon dioxide is emitted again when the fuel is burned, there is no net contribution to the atmosphere.
That is the basis for the case e-fuels are environmentally sustainable. However, the current process for producing them, by using renewable electricity to split water and produce hydrogen and then combining it with carbon dioxide under pressure and with the use of a catalyst, is highly energy inefficient.
For Amy Hebert, chief executive of Danish start-up Arcadia eFuels, the last-minute decision taken in March to allow new cars running on e-fuels onto the market represents an opportunity. “It’s a huge step,” she said. While electric vehicles will go a long way to decarbonising road transport, she thinks a substantial market will remain for e-fuels.
“If cars can be electrified, that makes absolute sense. In cases where that can’t happen, and people need to drive long distances, then we believe e-fuels are an appropriate alternative,” she said.
Others are not so sure. Swiss solar fuel producer Synhelion expects the opportunity to be small. “As sustainable fuels are generally used where electrification is difficult to implement, we do not believe that the decision will have a major impact,” said Carmen Murer, the company’s head of corporate communications.
Norsk e-Fuel, headquartered in Oslo, also sees little in the decision to make it change its plans. “We are specifically focusing on the sectors where we know there is currently no alternative if you want to have a substantial impact on reducing emissions quickly,” said Luisa Wagner, the company’s communications manager.
Aviation is seen as the sector where e-fuels will find a home. Electrification is challenging, even for short flights, and the use of e-fuels is backed by legislative quotas. Until March there was no such legislative opening for road e-fuels. And even if the decision is implemented, the automotive industry still needs to get behind it.
“E-fuel projects such as ours are dependent on the industry supporting our plans, and so far we have seen a much stronger interest and drive from the aviation sector,” said Wagner.
The eFuel Alliance, which lobbies for the industry in Brussels, is also clear that the opportunity is not yet in the bag. “It’s just a declaration right now. We need concrete proposals from the Commission, and then to see how these will be worked out,” said Ralf Diemer, the Alliance’s managing director.
e-fuel only vehicles
A road map for implementing the decision is expected by the autumn of 2024. The first step is likely to be a regulation for the type approval of vehicles exclusively powered by e-fuels. Work will also be required to define how these vehicles contribute to carbon dioxide emission reduction targets.
The use of e-fuels in existing vehicles will also receive support in legislation. A revision to the Renewable Energy Directive, also agreed in March, sets a mandatory quota that covers advanced biofuels and e-fuels in the transport sector. The revision also contains an option for a binding sub-quota for renewable fuels of non-biological origin, which covers the direct use of renewable hydrogen as well fuels derived from it. Still subject to confirmation by the Parliament and Council of Ministers, both measures would support the development of a market for e-fuels.
For the industry, there is considerable work to be done to meet the existing mandates for e-fuels in aviation and shipping, let alone any eventual road transport market. Start-ups are important players in doing that.
“The big oil companies are the natural choice for producing these products,” Hebert said, “but the regulatory landscape is still a little bit uncertain for them, and the size of production is smaller than what they are used to, at least at the beginning.” This is because of limitations in renewable energy supply and electrolyser maturity. “So it is up to start-up companies to get this market going.”
Diemer also sees start-ups and scale-ups playing an important role. “Especially when it comes to the technologies around electrolysers, around CO2 technologies, around improving efficiency, a lot of new players are on the field, and they are often start-ups,” he said. “This abundance of start-ups underlines that we are operating in an innovative and emerging market.”
However, for industrial scale production they will have to work with the oil industry. “I don’t think this value chain will be possible without big oil,” Diemer said. “You need a lot of capital, you need the industry’s knowledge and distribution channels to put a product in place. And you might also need to use its refineries.”
He thinks it will be interesting to see how start-ups position themselves as the market evolves, with some electrolyser specialists already broadening their scope to support the whole e-fuel production chain, or moving into production.
This is the case for Ineratec, which in April started work on an e-fuel production plant in Frankfurt. “So far, Ineratec has been a technology producer, but now it has decided to run a first production site by itself, together with partners, and in the end it might end up as a fuel producer,” he said
The chemistry of e-fuel production is well established. One route is the Fischer–Tropsch process, developed in the 1920s to convert coal into liquid fuels. The other is to use hydrogen and carbon dioxide to create methanol, which can then be shipped or stored for use as a fuel feedstock. In both cases the technology is mature, so it would be relatively simple for companies producing e-fuels for one sector to pivot to another if demand changed.
Arcadia eFuels, for example, was set up in 2021 to leverage various technologies for the production of e-fuels in transport applications. The company plans to build its first plant at the Port of Vordingborg in the southern part of Zeeland, with production currently scheduled to begin in 2026.
“With the plants we are building we are able produce e-kerosene for jet fuel, we can produce e-diesel for long-haul trucks, for cars or for the shipping industry, and we also produce naphtha, which is a product that can be used for gasoline blending,” Hebert said.
Norsk e-Fuel is a consortium formed in 2019 including electrolyser technology company Sunfire and carbon capture specialist Climeworks. The company's first production facility, at Mosjøen in northern Norway, is also due to come on line on 2026, and it recently signed a partnership agreement to supply fuel to Norwegian, Norway’s largest airline.
It uses the Fischer-Tropsch route to produce a synthetic crude oil. “From that intermediate product we can do anything that you do with oil, so from a technical point of view we could easily adapt our process to produce diesel or gasoline,” Wagner said.
Regardless of where the fuel is used, the e-fuel industry faces a number of hurdles when it comes to scaling up production. These include development of carbon capture infrastructure, the availability of renewable energy, and production of the technical components.
And there is scope for further innovation. “Electrolyser efficiency is currently around 70%, but there is no reason that cannot increase to more than 95% over the next five to ten years,” said Hebert.
More work also needs to be done on carbon capture. “The ideal technology is direct air capture, but this is currently too expensive and inefficient for industrial production. So, this will require a lot of research and development,” Diemer said.
Even where technology is proven in other spheres, work is required to apply it to e-fuels. “We are filing several patents on the integration of these technologies, which have never been put together in this way before,” Hebert said. “So there is quite a lot of innovation there, and ways to reduce cost.”
Although the chemical processes involved are mature, there is scope for innovation to provide further efficiencies. Already in its first plant, Norsk e-Fuel is planning to integrate a co-electrolyser based on solid oxide cell technology. This makes it possible to combine two process steps in the conventional approach, and to re-use heat generated in the Fischer-Tropsch process.
“Since electricity is the main cost driver in the production of e-fuels, that means more productivity for any given amount of electricity and less cost for the final product,” Wagner said.
Finally, there needs to be political support for the development of the industry and surrounding value chains. “The challenge lies in the industrial scale-up, which we don’t have right now, since we produce only small amounts of e-fuels,” Diemer said. “Unfortunately, the political framework conditions at EU level are thwarting precisely this ramp-up.”
Investment is particularly challenging for the companies. “The e-fuel projects that are ramping up production now are all first movers,” Wagner said. “It’s a new value chain, a new market, and a new product, and those innovations accumulate. So we need investors who are not too risk averse and ready to take on new opportunities.”
Help is also required if e-fuels are to compete on price with fossil fuels. Hebert draws a parallel with wind and solar energy, whose price has fallen dramatically over the past two decades so that it is now competitive with fossil fuels. “I think the same will be true of e-fuels, but we need more incentives and government support to make that happen,” she said.
The challenge for producers in Europe is that the incentives and penalties are aimed at users, such as airlines, or the fuel distributors, not at the companies making the fuels. “In the US, with the Inflation Reduction Act, the incentives go directly to the producer,” Hebert said. “That means the producer can lower the overall price to the end user, so then you’re sure that more plants will get built.”
One aspect of this political support is stability. In this respect, the March decision on new cars was not necessarily a positive development. Made at the last-minute following strong pressure from the German government, some see it as setting a dangerous precedent.
“Where negotiations have been going for years on decisions that industry needs in order to ramp up production, we think it is dangerous if states can intervene at the last moment,” Wagner said. “So, even if it gives us a market in the future, we concerned about the way it came about.”
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