David Olley is Senior Associate at Aurora Energy Research. He specialises in green molecules (hydrogen, e-fuels, and bio-fuels). He uses his background in energy economics and climate policy, combined with a foundation of physics to provide deep quantitative insights to energy market clients.
What has motivated the European Union to turn to e-fuels as part of its decarbonisation efforts, and which sectors are likely to emerge as the main beneficiaries?
The main sectors that are likely to emerge as the main beneficiaries are the aviation and maritime transport sectors, as well as the chemicals, refining, and fertiliser industries. There are other hard to abate sectors (e.g. steel) that could potentially benefit from e-fuel use, however they are more likely to pursue other routes to decarbonisation. There exists some potential in the road and rail transport sectors also, however these both face stiff competition from direct electrification.
Hydrogen is a crucial component in e-fuel production. How would you describe the current state and progress of the hydrogen sector?
David Olley: Progress in the hydrogen sector is currently lacking. There are bottlenecks in infrastructure (pipelines, storage, etc), however the main limitation is offtake. There are many producers out there ready to build projects, but offtake is uncertain.
The main driver of e-fuel and green hydrogen offtake is policy. These products are simply more expensive than their fossil counterparts to produce, and will be for some time. Therefore policy is required to drive uptake of these products.
The other key ingredient is carbon. Is there enough accessible and affordable carbon feedstock to sustain large-scale e-fuel production in Europe?
David Olley: That’s a great question, and it has a complicated answer. Until 2041, carbon from industrial sources can be used to produce e-fuels (relying on the argument that this carbon would have been emitted anyway). Therefore until this time, having enough accessible and affordable carbon is not the main bottleneck (green hydrogen is). After 2041, either strictly biogenic carbon (i.e. carbon from the natural carbon cycle, e.g. from agricultural waste) or expensive direct air capture are required. Therefore after 2041, the cost of carbon becomes increasingly uncertain, and certainly more expensive.
Since e-fuels share the same chemical composition as conventional fuels, to what extent can they actually reduce green-house gas emissions when assessed across their full life cycle?
David Olley: When direct air capture, or biogenic carbon dioxide is used, then the carbon emitted by the combustion of e-fuels will have been extracted from the atmosphere recently. This makes e-fuels carbon neutral in an ideal world. However, inefficiencies in production processes, imperfect carbon capture methods, and flexibilities in power sourcing requirements (e.g. small amounts of “grey” power used in the production process) introduce some net carbon emissions into the full life cycle. This is why we generally regard e-fuels as “low carbon fuels” (as opposed to carbon neutral). The EU commission has set a minimum greenhouse gas emission saving threshold of 70% for all types of recycled carbon fuels.
How do e-fuels compare economically with alternative low-carbon energy solutions, and what measures would be needed to boost their competitiveness and market adoption in Europe?
David Olley: There is no way to dodge the fact that e-fuels are expensive to produce. They are highly energy intensive, and require coordination across multiple processes. E-fuel producers need to procure multiple, sometimes hard to come by, feedstocks, and a high degree of scrutiny is applied to the green credentials of these.
Biofuels are often touted as an alternative, however whilst these are cheaper, they face significant issues with feedstock availability, and it is unlikely that the potential exists to fully cover current fossil fuel demand.
Direct electrification is another alternative, and in general where this is possible, it is the preferable option. The compounded inefficiencies involved in e-fuel use mean that it will never be able to compete with direct electrification on a cost basis. However there are many areas where direct electrification is impossible, and this is where e-fuels come in.
Finally, how do you envision the future of e-fuels in Europe’s energy transition?
David Olley: E-fuels are an integral part of Europe’s energy transition. Just as the transformation of the electricity sector is being addressed by a variety of technologies (wind, solar, batteries, etc…), so will the transformation of the wider energy sector require a variety of technologies. Each technology has a certain set of attributes that make them well suited to a particular application, and this is very clear in the case of e-fuels.
There are two key facts to come back to always: there are many challenges to be overcome in order to ramp up e-fuels in Europe, however they are the only viable avenue to fully decarbonise certain hard to abate sectors, such as aviation and maritime, in the near to medium term future.
Therefore I see the future of e-fuels in Europe as part of the puzzle, particularly in industries that have few other options. This is mainly in applications where direct electrification is not possible.
To achieve this, policymakers need to enact targeted policies, that give e-fuel producers certainty that there will be demand for their products. This means policy that specifically sets targets for e-fuel production/consumption. Furthermore, there needs to be subsidies provided for the production side, along with the penalties applied to the offtakers. If penalties are too great, and supply too limited, there is a risk that these hard to abate sectors will reject the transition completely.