Europe, once a frontrunner in synthetic fuel innovation, is now facing significant competition from China. Despite spearheading the development of e-fuels — synthetic fuels produced from green hydrogen and captured carbon dioxide — the continent is witnessing stagnation, while China accelerates its efforts.
According to the second edition of the International e-Fuels Observatory report by Sia Partners, China now hosts the majority of the world's announced and financed e-fuel projects. In 2023 alone, seven new e-fuel production projects received final investment decisions in China, while Europe saw almost none, apart from a small-scale Danish initiative.
These Chinese projects, primarily focused on e-methanol, are expected to produce 714,000 tons of oil equivalent annually. E-methanol, being technically simpler and versatile for use in maritime and aviation sectors, makes it a pragmatic choice for rapid industrial scaling.
Moreover, Asia, led by China, could potentially reach a production capacity of 6.86 million tons per year — accounting for nearly 40% of global planned volumes. Meanwhile, Europe's share has declined to 32%.
In contrast, Europe has concentrated heavily on producing synthetic sustainable aviation fuels (e-SAF), motivated by regulatory mandates requiring airlines to incorporate 1.2% synthetic kerosene by 2030. While this regulatory push aligns with Europe's climate goals, it has led to a narrow focus, making the sector vulnerable to high production costs and limited scalability.
The economic burden is significant: synthetic fuels could cost up to ten times more than conventional fossil fuels, compared to only two to three times for biofuels made from used oils or animal fats.
At the heart of Europe's struggle lies the cost of green hydrogen. Producing low-carbon hydrogen remains substantially more expensive in Europe than in China, primarily due to higher electricity costs. With the end of France's regulated nuclear energy access scheme (ARENH) approaching and uncertainty in securing affordable electricity contracts, the financial viability of many European e-fuel projects is at risk.
Electricity accounts for around 50% of operational costs in e-fuel production. Without stable, low-cost energy supply agreements covering at least 70% of their needs, projects cannot proceed to investment decisions, warns Benoit Decourt, co-founder of Elyse Energy.
Cédric de Saint-Jouan, spokesperson for the French e-fuels bureau, emphasizes that investment decisions must occur this year to meet the 2030 targets. A single large-scale project producing 100,000 tons annually could make a significant difference. However, hesitation among investors and buyers, driven by cost uncertainties, threatens to derail progress.
If the current trend continues, Europe risks losing a market it helped create to regions like China and the United States, where regulatory frameworks are more flexible and production costs are lower. Airlines are not restricted from sourcing e-fuels internationally, potentially exacerbating the shift away from European producers.
Maintaining Europe's leadership in hydrogen-based e-fuels will require urgent action to lower energy costs, accelerate investments, and foster innovation. Without strategic interventions, Europe could cede this crucial segment of the renewable energy transition to global competitors.