Why e-Fuels in Cars Make No Economic or Environmental Sense

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Originally published on Transport & Environment
By Eoin Bannon

With the review of the EU CO₂ emissions standards for cars and vans scheduled for June 2021, some, notably the oil and gas industry and automotive suppliers, are advocating adding CO₂ credits for advanced biofuels and synthetic fuels into the vehicle standards. T&E’s new analysis shows why this is not credible — neither from an environmental nor from an economic point of view.

Out of the Green Deal compatible technologies to decarbonise cars — sustainable batteries, green hydrogen, and renewable e-fuels — electrifying cars directly using batteries is by far the most efficient zero emissions pathway to decarbonise cars. Driving a car on e-fuels produced from renewable electricity would require close to five times more energy than when driving a battery electric vehicle (BEV). Additional analysis in this paper now shows how both on cost and lifecycle emissions BEVs strongly outperform e-fuel powered petrol cars.

Economic perspective: e-fuels would place a cost burden on both the economy and drivers

T&E’s Total Cost of Ownership (TCO) analysis shows that the very high costs of operating a conventional vehicle running on e-fuels would place a cost burden on the average European driver. For both new and second hand cars in 2030, the TCO premium for running a car on e-petrol compared to a BEV is €10,000, or 43% more expensive for an average driver. Critically, the TCO of running an existing petrol car on e-fuels would still be 10% higher than buying a new battery electric car, making e-fuels an unaffordable and unsuitable option for the existing fleet.

E-fuels would also be the most costly CO₂ compliance route for carmakers. It would cost carmakers around €10,000 in fuel credits for the amount of synthetic petrol needed to compensate for the emissions of an efficient petrol car placed on the market in 2030. On the other hand, the cost of a BEV battery could plunge down to €3,000 by 2030 — or more than three times less than what carmakers would pay for fuel credits — and with BEVs reaching cost parity with ICE in the mid 2020s, producing a battery electric vehicle rather than a petrol car will not require much additional investment. The e-fuel route would therefore put the competitiveness of the European automotive industry at risk as it would divert large investments away from the transition to emobility.

The higher compliance costs from e-fuels will eventually be passed on to the wider society leading to a less cost effective trajectory for our society and our economy as a whole. T&E shows that the total additional cost of an e-fuel pathway would be five times higher compared to the electrification pathway. The industry claims that producing e-fuels in Africa and importing them to the EU would lower the costs thanks to cheaper solar PV. In this paper, T&E assumes this most favourable case for e-fuels where these fuels would be available in 2030 and shows that the lost revenue for the EU economy could be around 10 times higher for the e-fuels pathway compared to domestically produced batteries from the early 2020s).

In brief, the idea of powering cars with e-fuels does not have economic credibility — neither from the drivers perspective, nor from the carmakers compliance angle or from the economy as a whole. Allowing e-fuels credits would thus only increase the costs of decarbonisation and delay the inevitable transformation towards affordable electric mobility.

Climate perspective: e-fuel environmental benefits are a mirage

Updated T&E lifecycle CO₂ analysis shows that the average amount of CO₂ emitted by new BEVs powered by the EU electricity grid in 2030 is around 40% lower than for a petrol car running on the e-fuels which meet the RED II sustainability criteria.

If electricity with the same carbon intensity is used to power the BEV and to produce the e-fuel (in line with RED II criteria), the battery car emits half as much as the comparable petrol car running on e-fuel. Conventional cars powered with e-fuels consistently emit more CO₂ than an equivalent BEV, including in Germany where such e-fuels are high on the agenda. Using e-fuels to power conventional cars will provide considerably less climate benefits, on top of requiring much more renewables.

Availability: e-fuels should not be diverted to cars where better alternatives exist

The limited availability of scalable sustainable fuels means that there is no scope to use renewable electricity inefficiently for the production of e-fuels for road transport where other more efficient, cleaner and cheaper solutions are available. Promoting even a limited use of synthetic hydrocarbons in road transport now will divert the manufacturing and supply chains from being targeted at sectors such as aviation, maritime or the heavy industry. This makes the transition harder to accomplish and could seriously delay the decarbonisation of the economy sectors which cannot use batteries to decarbonise.

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Vehicles CO₂ regulations should not allow fuel credits

Adding e-fuels to the car CO₂ regulation would greatly weaken its effectiveness. Carmakers would be able to buy fuel credits instead of accelerating what they have direct control over: the efficiency and the electrification of their vehicle sales. The effectiveness would also be watered down when mixing different sectors (downstream transport vs. upstream fuels), already covered in effective sector-specific legislation. From the smart regulation point of view, such a complex compensation system would likely undermine the credibility and enforceability of the regulation.

The EU is at risk of making an untenable tactical blunder. Rewarding synthetic fuels under the cars CO₂ standard regulation is a bad idea- implementing this would delay electrification in road transport, prolong life of polluting engines and postpone the economy-wide decarbonisation by misallocating green electrons. With no e-fuels at scale in sight, and a surge in electric car sales, the e-fuels appear to be a Trojan Horse to keep combustion engines and demand for hydrocarbons alive. Politicians must not allow the transition to zero emissions mobility to slow down.

⇒ There should be no CO₂ credits given to auto makers for either alternative or synthetic fuels used in road vehicles under the vehicle CO₂ regulations.

Download the full report: Briefing: Why e-fuels in cars make no economic or environmental sense