Reasons Behind the e-Fuels European Fight Back

Germany has thrown a monkey wrench into the European Commission’s objective of using EVs to transition to 100% carbon-neutral vehicles by 2035, a vital element of its aim to become climate-neutral by 2050.

To protect its car industry from the effects of eliminating ICE vehicles, Berlin has blocked approval of a regulation to ban the sale of new CO2-emitting vehicles beginning in 2035, which would de facto eliminate cars drive by internal combustion engines. The ultimatum was instigated by the free-market FDP, a partner in Chancellor Olaf Scholz’s ruling coalition. It wants the EC to grant an exception in the regulation that would allow the sale of ICE vehicles that use eco-fuels (or e-fuels), which are produced by the synthesis of hydrogen and carbon dioxide.

The German demand is based on the argument that e-fuels are carbon-neutral and therefore sustainable. However, according to Jose Pereira, mobility advisory director at Frost & Sullivan, that argument has not yet been proven and requires more research. One issue is that e-fuels are “absolutely not tailpipe zero and cannot be made tailpipe zero,” and CO2 is among the pollutants, which should disqualify them from being classified as carbon-neutral.

“The outputs [of e-fuels] are carbon dioxide and water,” Pereira explained, “but the fuel can be claimed to be CO2-neutral because it’s replacing the CO2 it took out of the environment.” In fact, he went on, it has been argued that e-fuels are potentially carbon-negative because they take out more than they put back while the fuel is in the car. “They are saying that you’re temporarily storing carbon from the atmosphere because you’re putting it back slowly,” he said.

According to Pereira, Porsche and other German carmakers want the e-fuel exemption to allow their high-performance sports cars to be ICE-driven. “They want to create some room for the combustion engine to survive, even if it’s in low-volume production, so they can still make their high-performance engines for sports cars and get away with them as being sustainable.”

Sports cars represent unique selling points in Europe, he said, adding: “Europe is known for its legacy luxurious sports car.” Formula 1 is planning to use 100% sustainable fuels in its race cars starting in 2026, which is how new car technology is often initiated. “Any key technology is put in a motorsport arena first as a showcase for innovation, almost in preparation for making it mainstream,” Pereira noted.

Another reason for the German demand is based on energy and industrial security, in view of the projected lack of materials to build EVs. “If you were to transition the whole industry to EVs by 2035, you’re going to need a huge amount of batteries which don’t currently exist on the European continent,” Pereira said. In addition, a potential material supply pinch is coming in the next five years because there are not enough mines or processing facilities. “If that’s true, it is a problem for the whole industry.”

In addition, fears have arisen over possibly massive job losses and social instability from transitioning an entire industrial base. “There is political capital to be gained by aligning yourself with workers, unions, and the communities that have depended on the automotive industry for so long,” Pereira said.

However, one problem with allowing the e-fuels exception is that companies will start investing in making processes more efficient and in scaling, “and then suddenly it’s not just for the Ferraris but it’s for many other vehicles,” he said. “This is what the environmentalists are concerned about, that it starts off as an exception for the Ferraris and then becomes a backdoor for maybe 50% of the market.”

In addition, the transition to electric is very expensive and the funding for EV development would be diluted by investments in combustion engineering. “The environmentalists argue that even if you could do e-fuels sustainably and cost-effectively, you are jeopardizing the speed of transition to electrification because the money has to be shared between two technologies over the next 15 years,” Pereira noted.

Finally, now that the German government has got its way and the EU has included an exception for e-fuels in its carbon-neutral regulation, there must be protocols in place to assure that the fuels used in future ICE vehicles are in fact carbon-neutral.

For starters, there is no agreed methodology for measuring carbon, Pereira said. “There is not even an agreed process for counting lifecycle assessments. At the moment, everybody applies slightly different rules.” He proposed drawing up a set of rules similar to those used in financial audits. “You’d almost need to have a whole industry around carbon auditing as you have around financial auditing.”

Then you have to ensure that the fuel going into the car is in fact zero-carbon. “For that you need a whole enforcement protocol,” Perira said. “It’s very tricky.”