E-fuels: A slippery slope for Europe’s EV transition?

Wednesday 19th July 2023

Headshot of Jon Lawes - Managing Director at Novuna Vehicle Solutions

Jon Lawes, Managing Director, MHC Mobility argues that e-fuels pose little disruption threat to EV technology, but could be symptomatic of a deeper challenge towards Europe’s transition and ICE phase-out targets.

The European Union’s commitment to phase out new internal combustion engine (ICE) vehicles by 2035 is at the heart of the Bloc’s carbon reduction plans. It also has an important bearing on confidence and adoption for electric vehicles (EVs).

The recent news from Poland, that it plans to legally challenge the 2035 ICE ban, is not to be taken lightly. But it’s not the first backwards step either. German policymakers made headlines in their pursuit of a loophole in the legislation that will allow the production of ICE vehicles running on ‘e-fuels’. After a period of political blockage, the European Commission conceded and the e-fuels provision will, in theory, be integrated into law in the near future.

These synthetic alternatives are produced using captured omissions. This makes them carbon neutral because the CO2 they omit replaces that which was taken out of the atmosphere during production, ‘recycling’ existing emissions.

On paper this sounds like a compelling innovation for Europe’s manufacturers - one that could throw a lifeline to the ICE powertrain and help decarbonise existing fleet vehicles. There is no doubt it’s a useful addition to the wider decarbonisation toolkit - but what does this mean for EVs?

A new uncertainty

One of the key issues to date facing the full transition to EVs has been the uncertainty around each European country’s long-term EV tax initiatives and incentives.

Similarly, the danger of the e-fuels loophole is that it further undermines the investment certainty in electrification - whether that’s for European carmakers, fleet operators, or private users. It’s also the case for charging point companies, with EV infrastructure already varying considerably across the continent.

Any uncertainty over whether to switch is particularly acute for countries lower in EV maturity, for example in central and eastern Europe. This raises the stakes of their transition choices and makes the process more complex. Onlookers will worry e-fuels could undermine the clarity of the EU’s commitment to ICE phase-out for these countries.

A red herring?

However, e-fuels must be kept in perspective.

This is a synthetic product. There are already estimates that e-fuels will cost around 50% more than regular petrol at the pump. The movement is also in its early stages; e-fuels aren’t being produced at scale.

The reality is that this technology will likely be limited to a very small number of high-end, premium vehicles, where drivers are less impacted by operating costs. It might also be reserved for sectors where the transition challenge is greater, such as aviation.

If e-fuels are unlikely to ever compete at a mainstream level, fleet operators should not lose confidence in their long-term EV strategies.

The slippery slope…

Nevertheless, while e-fuels themselves pose little disruption threat to EVs, they could be a symptom of a deeper challenge to the transition.

Germany was not the only member state to hold up the passing of ICE phase-out legislation - Italy, another of Europe’s big automobile manufacturers, wanted similar assurances. Others abstained, and now Poland is threatening to challenge the ban as well.

Individually these actions may have good intentions, but there is no time for backwards steps. The recent call from the European Scientific Advisory Board on Climate Change, to reduce European omissions 90% by 2040 (versus 1990), is an ambitious target that highlights the urgency and scale of the challenge ahead. The whole episode is also a telling reminder of just how unbalanced the continent’s transition landscape is.

While we’re unlikely to see an e-fuelled future extend beyond a select number of niche models, it’s vital that European policymakers, member states, and manufacturers stay firmly on track to avoid a slippery slope for Europe’s transition strategy.