GO big or GO home with e-fuels and hydrogen

Alternative fuels Strategies

E-fuels and hydrogen are heralded as Europe’s fuels of the future. When produced using renewable electricity, these fuels could be a key resource to decarbonizing the economy for sectors that cannot be readily electrified, while avoiding the sustainability pitfalls of biofuels.

While e-fuels and hydrogen sound appealing, they suffer from inherent inefficiencies, creating sustainability risks particular to the industry. Around half the input energy in the electricity used to make e-fuels is lost during the production process; for hydrogen, around one-quarter of input energy is lost. Using renewable electricity as e-fuels in an internal combustion engine is about five times less efficient than supplying that electricity directly to battery electric vehicles.

If e-fuels and hydrogen are made entirely from renewable electricity, this inefficiency isn’t a problem for climate—using a great deal of zero-carbon energy is still zero-carbon. The difficulty comes when e-fuels and hydrogen are not made from 100% renewable electricity. If e-fuels were made from regular grid electricity in the European Union today, their climate impact would be three times higher than using fossil fuels directly in cars and trucks. Renewable electricity resources are limited, so even if hydrogen and e-fuels are produced with renewable electricity, those renewables might be diverted from other uses. This could indirectly lead to increased use of fossil fuel electricity elsewhere. And, because e-fuels and hydrogen use so much electricity, a small indirect impact on fossil electricity can have a big impact on climate.

These risks highlight the need for tight sustainability safeguards to ensure that e-fuels and hydrogen are really renewable and deliver genuine CO2 emission reductions. This is a task for the European Commission, which is obliged to issue a delegated act on the use of additional renewable electricity for Renewable Fuels of Non-Biological Origin (RFNBOs), a category including both e-fuels and hydrogen produced using electrolysis. This document, due in December 2021, will introduce new rules for e-fuels and hydrogen producers who wish to claim a renewable product for the purposes of counting towards the renewable transport fuel targets in the Renewable Energy Directive (REDII).

One way to easily ensure that the renewable electricity isn’t being diverted from other uses would be by using a direct connection between a renewable energy installation and a hydrogen or e-fuels producer. The renewable energy installation would need to be built at the same time or later than the fuel producer. This option is described in the REDII and is rated as ensuring “likely additional” renewable energy use in this handy cheat sheet by Cerulogy. Things get messier when the hydrogen or e-fuels producer is importing electricity from the grid – and still wants to claim 100% renewables. The most common system for claiming renewable electricity in Europe today, Guarantees of Origin (GOs), is not exactly fit for purpose. We argue that because far more GOs are available than people want, there is a surplus of these certificates that could be used without guaranteeing anything – because buying more GOs does not likely lead to building additional renewable energy generators.

The idea of GOs can be vastly improved upon, and this is something the European Commission should consider when drafting its delegated act. The first step would be to require that renewable electricity claimed by e-fuels and hydrogen producers does not receive other public incentives targeted at decarbonizing the grid. This idea, first proposed by the Öko Institut, would reduce the chances that using renewable electricity for fuels production diverts that clean resource from other users. But it would be even better if e-fuels and hydrogen producers were required to establish long-term contracts (power purchase agreements, PPAs) with specific new renewable electricity generators, as these new generators would be tightly linked with the e-fuels or hydrogen producers and would provide a long-term investment signal. The combination of these ideas, power purchase agreements without other policy incentives, has been dubbed “PPA+” in our consultant report by Cerulogy. A requirement for PPA+ in the European Commission’s delegated act would be a pretty solid deal for the climate.

Lastly, this delegated act only covers e-fuels and hydrogen used in the transportation sector, but this might not be a transport-only problem for much longer. The European Commission is considering options to incentivize hydrogen at the EU level, including adding quotas for e-fuels and hydrogen in other sectors such as industry. As it now stands, there are no sustainability requirements for e-fuels and hydrogen used outside transport. If new incentives for hydrogen and e-fuels are introduced in revisions of the REDII or the Gas Directive, they absolutely should point to the same rules on additionality of renewable electricity in the delegated act.

While the systems that would ensure additional renewable energy for the production of hydrogen and e-fuels may be complex, they are very important. Additionality will prevent fuel producers from displacing renewable energy from other sectors and increasing fossil fuel emissions, instead incentivizing additional renewable energy production. If the Commission wants to go big on e-fuels and hydrogen, it needs to go green, too.