E-Fuels Offer a Viable Auto ICE Alternative to BEVs, Says Analyst

Carbon-neutral fuels, such as e-fuels, have substantial potential for growth if government regulators allow the continued development and use of internal-combustion-engine technology.

This is the suggestion made by an industry report, Sustainable Biofuels & E-Fuels Market 2025-2035: Technologies, Players, Forecasts, by technology analysts IDTechEx.

It says that e-fuels, those synthetic fuels produced by combining green hydrogen and captured CO2, can offer a key advantage in reducing greenhouse gas emissions from transportation by being compatible with existing ICE and its service station infrastructure, hugely reducing the need for asset modifications.

In an article, E-Fuels: Navigating the Path from Pilot to Commercial Scale Production authored by the company’s senior technology analyst Chingis Idrissov, accepts that while current e-fuel deployment remains limited, “the market demonstrates substantial growth potential, driven by evolving policy frameworks, maturing technologies, corporate interest, and continued innovations.”

One of the major growth trajectories for e-fuels is in automotive and would be particularly boosted should the European Union’s scheduled consultation on carbon-neutral fuels for ICE-powered vehicles in 2026 allow new sales of these vehicles beyond the proposed zero-emissions mandate from 2035.

Proponents of the technology argue that carbon-neutral-fuel overall emissions would, therefore, be tiny compared to battery-electric vehicles and easily offset by the extra emissions from tire shed produced by the heavier BEVs.

Idrissov’s article points out that the EU has established mandates for more e-fuel use in the aviation and maritime industries and this will drive forward investment in the sector across the board.

The U.S. has taken a different approach, supporting e-fuel production through the Clean Fuel Production Credit under the Inflation Reduction Act, and offering base rates of $0.20/gallon for non-aviation fuel. Other countries, including the U.K., Japan, China and Canada, are implementing similar regulations and incentivization mechanisms.

He points to significant corporate investments in the technology including more than $100 million by Porsche, Infinium's $200 million funding from Brookfield Asset Management for Project Roadrunner in Texas and HIF Global's $220 million in equity investments from Japanese investors including MOL, Idemitsu Kosan and JOGMEC.

Twelve, another emerging player in the e-fuels space, has secured $645 million in a funding round led by TPG Rise Climate. Idrissov says: “These investments signal growing confidence in e-fuels' commercial potential and mark the industry's transition from demonstration plants to commercial-scale production.”

Idrissov adds that e-methanol has emerged as a frontrunner in the e-fuels landscape, driven by its versatility as both a chemical feedstock and fuel, infrastructure compatibility and mature production technologies.

The global project pipeline reflects this momentum, with announced e-methanol projects exceeding 15 million tons of annual production capacity by 2030.

Another advantage with e-methanol is that its production uses established technologies including water electrolysis, carbon capture and methanol synthesis, making it commercially viable in the near term.

However, Idrissov recognizes all e-fuels face major hurdles in their deployment mainly in production costs. For example, aviation grade e-fuel, E-SAF, costs four-to-10 times more than conventional jet fuel, requiring substantial government support to be commercially competitive. The production process also presents efficiency challenges, with considerable energy losses making e-fuels less attractive where direct electrification is feasible.

Infrastructure limitations also pose challenges to scaling up. The sector requires substantial renewable electricity capacity, while green hydrogen production faces manufacturing and development bottlenecks.

CO2 sourcing also presents a particular challenge, for example, biogenic sources, currently dominant owing to lower capture costs, face availability constraints as production scales.

The EU requires a transition from industrial CO2 emissions to carbon removal technologies after 2040, yet direct air capture remains expensive at $600-$1,000/tCO2, although costs are expected to decrease to $200-$400/tCO2 by 2030.

Idrissov concludes: “The e-fuels sector stands at a critical juncture in its evolution from laboratory innovation and demonstration projects to industrial-scale production. While significant progress has been made in technology development and market interest, evidenced by substantial corporate investments and supportive policy frameworks, considerable challenges remain.

“The industry must overcome high production costs, address infrastructure constraints and solve the puzzle of sustainable CO2 sourcing to achieve widespread adoption. Despite these obstacles, the strategic importance of e-fuels in decarbonizing hard-to-abate sectors, particularly aviation and maritime transport, continues to drive innovation and investment in this field.

“As technology matures and production scales up, e-fuels are likely to play an increasingly important role in the global energy transition, though their deployment will require continued policy support and technological advancement to achieve commercial viability.”