The plan in the EU was to ban the sale of all new cars with combustion engines by 2035.
But that plan was temporarily put on hold after Germany demanded an exemption for cars that burn e-fuels, arguing that such fuels can be produced using renewable energy and carbon captured from the air, thereby making them less carbon-intensive than traditional gasoline and diesel.
E-fuels are produced by synthesizing captured CO2 emissions and hydrogen produced by using renewable energy or carbon-free electricity.
To clarify, no form of “fuel” for vehicles – whether its electricity, e-fuels, or traditional petrol – is completely carbon-free. It’s just that some are less carbon-intensive than others.
The problem with e-fuels, at the moment, anyway, is that they’re quite expensive to produce. As reported in Reuters, using e-fuels in an internal combustion vehicle requires about five times more renewable electricity than running an electric vehicle.
I maintain that e-fuels are a last-ditch effort to keep the internal combustion engine relevant as electric vehicles continue to swipe market share from internal combustion vehicles at a rapid pace.
There is an environmental argument to be made for using e-fuels for sectors that are more difficult to “decarbonize,” such as shipping and aviation. From a practical economic standpoint, though, the jury is still out as e-fuels still aren’t produced at scale.
The largest e-fuel production facility, which is in Chile, is looking to produce 145 million gallons per year. This barely represents an accounting error, as U.S. consumption alone comes in at around 370 million gallons per day.
Here's what that facility looks like at the moment …
In any event, Germany certainly made e-fuels a sticking point in the EU plan to ban the sale of internal combustion vehicles. And as a result, the EU has made an exception for internal combustion vehicles that only use climate-neutral e-fuels.
It’s not likely that any of this matters, because by the time 2035 rolls around, more than half of all new vehicles sold in the EU will be electric.
Either way, the EU is now one step closer to phasing out the sales of traditional internal combustion vehicles. And while I’ve never been a fan of government mandates, as investors, it would be unwise for us to ignore the fact that the EU’s decision to ban traditional internal combustion vehicles that run on gasoline and diesel is just one more reason to be bullish on electric cars.