The EU has launched a package of measures aimed at kickstarting investment in the production of hydrogen-based e-fuels and other sustainable fuels, as it confronts a “market failure” and the prospect of missing its targets.

The package, called the Sustainable Transport Investment Plan (STIP), is aimed at clean fuels for aviation and maritime sectors.

To meet the EU's sustainable fuel targets, under the RefuelEU Aviation and FuelEU Maritime Regulations, Europe needs to produce around 20mt/yr of sustainable fuels—biofuels and e-fuels—by 2035, according to the European Commission.

“Despite Europe having the largest project pipeline ready for e-fuel production, investors hesitate to take final investment decisions” Tzitzikostas, European Commission

“Yet today, the regulatory obligations are not enough to trigger investment. We need to reach this goal and we face a clear market failure,” said Apostolos Tzitzikostas, European Commissioner for Sustainable Transport and Tourism.  “Despite Europe having the largest project pipeline ready for e-fuel production, investors hesitate to take final investment decisions.”

Sustainable fuels currently cost 2–10 more times than conventional fuels and require “massive capital investments”. “There is also a mismatch between the needs of the fuel producers and the needs of offtakers, like airlines or shipping companies,” Tzitzikostas said.

To scale up the production of renewable and low-carbon fuels in the EU, the industry needs €100b ($114b) of investment by 2035. “Most of this is expected to come from the private sector, but it is not yet happening, and certainly not at the pace required or at the pace we would want,” he said.

The next two years are important. Investment decisions and construction must start by 2027, or we will miss the 2030 targets. It is as simple as that,” Tzitzikostas said.

The STIP will mobilise all resources under existing EU funding programmes, such as the Innovation Fund, Horizon Europe and InvestEU, amounting to at least €2.9b support for sustainable fuels.

In addition, the EU will work with member states to launch an “eSAF early movers coalition” pilot project to mobilise at least €500m. “We will also strengthen international partnerships to boost global production of sustainable fuels, while ensuring at the same time fair competition for EU producers and users,” Tzitzikostas said.

Faltering growth

Efforts to scale up production of synthetic fuels such as methanol have faltered, largely as a result of insufficient demand at current prices. Last year, Danish renewable energy company Orsted halted construction of Europe’s largest synthetic methanol production project—FlagshipONE, in northern Sweden—more than a year into construction, citing the slower-than-expected emergence of Europe’s green fuels markets. Methanol faces growing competition from LNG in the maritime fuels market. The recent postponement of talks on the implementation of the International Maritime Organization’s decarbonisation strategy for shipping represents a further setback for the clean fuels sector.

Spanish energy company Moeve welcomed the EU’s initiative. "The EU's [STIP] is a major step forward in support of decarbonising aviation and maritime transport,” said Carlos Barrasa, the company’s EVP for Commercial & Clean Energies.

“A focused deployment of the funds provided under the plan will support the scale-up of sustainable fuels production in Europe, reinforcing the region's leadership in the global clean energy transition."

Moeve produces a range of second-generation biofuels for aviation and maritime transport and already SAF and marine biofuels across Spain's major airports and ports. It is also developing a large-scale green hydrogen plant in southern Spain with a view to producing e-SAF and other fuels such as e-methanol and green ammonia.

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Author: Stuart Penson