Electrification is the key enabler of the energy transition. Some sectors will be difficult to electrify, however, including segments of transportation. Batteries are a poor substitute for the energy-dense fuels that currently power ships, long-haul aircraft and heavy-duty commercial vehicles, for instance.  

E-fuels ‒ also known as electrofuels, eFuels, synthetic fuels, Power-to-X (PtX), Power-to-Liquids (PtL) and renewable fuels of non-biological origin (RFNBOs) ‒ are a synthetic alternative to fossil fuels. They can decarbonise hard-to-abate sectors without the need for the early scrapping of long-life equipment.  

E-fuels are produced by combining electrolytic (green) hydrogen, made by electrolysing water using renewable electricity, with captured carbon or nitrogen. An e-fuel can be considered carbon neutral if the emissions released into the atmosphere during its combustion are equal to (or less than) the captured CO₂ used to produce it. 

Identifying pathways from legacy fuels into low-carbon alternatives is a perennial challenge for incumbent energy players. Bioenergy investments have gained momentum, but concerns persist over the availability of feedstock. The food-versus-fuel debate lingers. Although primarily considered a long-term disruptor, e-fuels offer companies an intriguing prospect at the intersection of electrons and molecules. The potential to capitalise on existing technical, commercial and marketing capabilities makes it an appealing, if challenging, opportunity for many. 

The energy transition requires e-fuels, but they depend on the successful deployment of other technologies that are still nascent and expensive, such as green hydrogen and CO2 capture. Consequently, while the e-fuels opportunity won’t materialise until after 2030, companies that position themselves now will improve their chances of success. Finding the optimal blend of competitive hydrogen costs, CO2 sourcing and policy support will be key – and that will come down to selecting the most attractive location.

Commercial viability is the key challenge in scaling up e-fuel production. Green hydrogen production and CO₂ capture costs are high. These costs can even increase with the introduction of rules such as the Delegated Acts in Europe, which define when hydrogen and hydrogen derivatives can be considered an RFNBO. The subsequent conversion process to the final e-fuel product is both energy and capital intensive – and delivery costs must also be considered. There is no shortage of offtakers seeking low-carbon fuels, but the gap between cost of production and willingness to pay is sizeable. 

Different conversion technologies are used to produce e-fuels depending on the desired final product. These processes are largely the same as those that industry uses for equivalent carbon-intensive final products. However, new technologies are emerging that promise to lower costs and improve efficiencies, along with alternative routes, such as converting e-methanol into e-jet (e-kerosene). As it stands, however, and regardless of the route, the key challenge for all these technologies is in integrating green hydrogen, carbon or nitrogen, and their subsequent conversion in a large-scale commercial e-fuel production facility. 

Policymakers acknowledge the role of low-carbon liquid fuels in the energy transition, and the need to limit the risk of food-versus-fuel competition from biofuels has fostered policy support for e-fuels. 

Indeed, many markets already have set sustainable aviation fuel (SAF) targets and corresponding e-jet (e-kerosene) targets. In April 2024, the UK confirmed that its power-to-liquid obligation would start in 2028 at 0.2% of jet fuel demand, reaching 3.5% by 2040. The US Treasury subsequently released guidance on its SAF credit, including for SAF synthetic blending. 

The International Maritime Organization has committed the global shipping industry to achieving net zero emissions by 2050. To achieve this, the mechanisms being considered include greenhouse gas (GHG) fuel standards, levies and cap-and-trade systems. These will all encourage shippers to consider e-fuel alternatives – particularly e-methanol and, longer-term, e-ammonia. 

It is Europe, however, that is leading the formation of targets, incentives and penalties to support e-fuels.  

Producers with access to the lowest-cost renewable generation will have the edge. Yet, those same locations won’t always have the most advantaged CO₂ sources. First movers have found success in pairing low-cost renewables and biogenic CO₂ sources.  

Consequently, scaling up BECC ahead of an anticipated fall in DAC costs will provide the greatest opportunities. Of course, the rules and subsidies in place to support e-fuel production, including the e-fuel value chain, will also have significant bearing. 

• Biofuel producers: the lowest-cost means of meeting many of the coming aviation and maritime targets will be directly through biofuels. Renewable fuel suppliers, such as Neste, Chevron Renewable Energy Group and Diamond Green Diesel (a Valero and Darling Ingredients joint venture), have developed leading positions. Interest continues to build from new entrants, and these early movers will be looking to price up to the margin against the next low-carbon fuel alternative of e-fuels. 
• Biomass power generators: globally, there is 73 GW of biomass generation capacity online today across more than 2,200 projects, highlighting just how fragmented the market is. Drax (2,580 MW) and Ferrybridge (2,098 MW) in the UK are the two largest, having converted from coal plant to biomass. Both are planning carbon capture developments where the CO2 could be sold directly to e-fuel producers. There is no shortage of coal generators globally that could follow suit, but biomass feedstock constraints will eventually surface, and these generators often require subsidy support. 
• Vertical integration: energy producers, including refiners and fuel marketers, who see a long-term future for e-fuels should look to build integrated positions throughout the value chain into renewable generation and biogenic CO₂ sources. Although the CO₂ can be sourced directly, the privileged few with low-cost biogenic CO₂ will look to price as close to the margin of the next scalable CDR or DAC. 

• Subsidy accumulators: regimes around the world will operate differently. Those who can layer together subsidies across renewable generation, hydrogen production and CO₂ capture, then price towards displacement costs in markets with penalties, appear strongest. But many developers will be wary of over-reliance on subsidies given the risk of policy shifts in such a nascent market. 
• Access to premium offtakers: one of the challenges most regularly cited by low-carbon hydrogen developers is sourcing offtakers willing to pay the necessary premium. This comes into sharper focus when it comes to e-fuels, given the uncertainty as to the direction in which costs are headed, how rules governing RFNBO might evolve and what technologies might disrupt the current outlook.                          
  • Developers require long-term commitments – from either offtakers or governments. It’s unlikely that the former will stretch much beyond five years considering the nascent stage of the e-fuel market, so policymakers will have to step up to cover the cost gap and stand firm against the rules and regulations being signalled today, such as ReFuelEU Aviation and FuelEU Maritime. 

• Technology providers and licensors: the conversion processes are long established across many e-fuels, from which existing licensors are set to benefit, but several technology providers are looking to disrupt the space. 
• Traders: e-fuels will create a commercial intersection between electrons and molecules across transport sectors that is new to the energy industry. Aviation, maritime and heavy-duty road transport use different incumbent fuels where competition has never existed. These sectors are now competing for the same biofuels and the same green hydrogen and CO₂ underpinning e-fuels. Green hydrogen and CO₂ will be pitted against biofuels to meet low-carbon demand in these sectors, with biogenic CO₂ sought after to produce the most competitive RFNBO-compliant e-fuels. Such uncertainty and potential volatility are what traders seek.