Executive Viewpoint (column)

Z. SKOUFA, Managing Director, Methanol, Johnson Matthey, Billingham, England, UK 

The pathway to decarbonizing global transport is one of the greatest industrial challenges of our time. In hard-to-abate sectors such as aviation, shipping and long-haul road freight, electrification is unlikely to provide a complete solution. In these sectors, synthetic fuels, or eFuels, are increasingly being recognized as a credible, scalable option for reducing emissions without the need to overhaul existing infrastructure. 

eFuels are drop-in, potentially carbon-neutral alternatives to fossil fuels. Produced using green hydrogen (H₂) from electrolysis and captured carbon dioxide (CO₂), eFuels are likely to play a central role in the energy transition. However, despite growing political support and encouraging signs from early projects, eFuels remain significantly more expensive than conventional fossil-based fuels. This economic gap poses a real risk to the sector’s ability to scale and compete. 

A key reason for the price disparity lies in the complexity of the eFuels value chain. Although the technologies involved are either mature or rapidly advancing, the cost structure is sensitive to several interdependent factors, including:  

• The availability and price of renewable electricity 
• The capital cost and efficiency of electrolyzers  
• The accessibility of suitable carbon feedstocks.  

Each of these elements must align if eFuels are to become cost competitive. 

Technology and feedstock pressures. Renewable electricity is by far the most significant contributor to the overall cost of producing eFuels, accounting for more than half of the levelized cost in many cases. While the prices of wind and solar power have fallen substantially over the past decade, eFuels production is highly energy intensive and its economic viability depends not just on low-cost power but also on high and stable capacity factors. Where renewable generation is intermittent or constrained, projects often require over-sized electrolyzers or additional storage capacity, which in turn increases capital expenditure and lowers asset utilization. 

Electrolyzers themselves represent a further economic challenge. While established technologies such as alkaline and proton exchange membrane (PEM) electrolysis are already in commercial use, costs remain high and large-scale production is still limited. Efficiency improvements are on the horizon, including advances in solid oxide electrolysis that could reduce energy input requirements. However, these technologies are not yet widely deployable at industrial scale. There remains a pressing need to improve the integration between electrolysis and downstream synthesis processes to make the most efficient use of what is, in effect, very expensive H₂. 

Carbon sourcing adds another layer of complexity. In many jurisdictions, including the European Union (EU), regulations such as the Renewable Energy Directive (RED II and III) define strict criteria for which CO₂ sources are eligible for use in eFuels. The use of fossil-derived CO₂ is permitted only on a transitional basis, meaning producers must increasingly rely on biogenic sources or direct air capture (DAC). While biogenic CO₂ is more cost-effective, supply is limited and geographically constrained. Conversely, DAC offers long-term potential but is currently prohibitively expensive, with costs ranging from $300/metric t–$600/metric t of CO₂. These constraints not only impact production economics but also shape project siting and scalability.   

Therefore, the location of an eFuels project is one of the most decisive factors in determining its viability. Projects need access to abundant, low-cost renewable energy and a compliant CO₂ source within a favorable regulatory and logistical environment. Regions such as southern Chile, North Africa, the Middle East, Tasmania and parts of the U.S. are emerging as ideal candidates due to their strong wind and solar resources, combined in some cases with access to hydropower or existing biogenic CO₂ streams. Locating a plant in one of these high-potential areas can significantly improve capacity factors and help reduce the cost per ton of eFuel produced.  

Policy certainty and system integration. Even with ideal siting and technological optimization, however, closing the cost gap will not be achieved by engineering alone. Policy remains a powerful lever, and in some instances a bottleneck. While there has been notable progress in creating market demand through instruments such as the EU’s ReFuelEU Aviation and FuelEU Maritime regulations, as well as a monumental global carbon price endorsed by the International Maritime Organization (IMO), other policy mechanisms risk constraining the sector unnecessarily. One example is the requirement for hourly matching of renewable electricity used in electrolysis. While conceptually sound, such measures can create complexity and cost without delivering proportional environmental benefit. More flexible matching schemes, such as monthly or annual correlation, can provide similar decarbonization outcomes with greater project feasibility. Likewise, overly restrictive rules on acceptable CO₂ sources can raise feedstock prices and reduce access to scalable supply. 

To stimulate investment and bring projects to financial close, there is a strong case for a more transitional approach to regulation. For example, the IMO has agreed to a two-tiered greenhouse gas (GHG) reduction trajectory, with a cost of non-compliance to be reviewed after 2030.  Grandfathering regulatory conditions at the point of final investment decision, for example, would give project developers and offtakers the confidence they need to commit to long-term contracts. Aligning regulatory ambition with commercial and technical readiness would reduce risk, unlock capital and accelerate deployment, particularly in the crucial early years of market development. 

It is also worth recognizing that the technologies at the heart of eFuels production are not experimental. Methanol synthesis, for instance, is a mature industrial process with decades of operational experience behind it. This is not about reinventing the core chemistry—rather it is about refining the system-level design to support commercial-scale deployment using green inputs. 

What matters most now is integration: of technologies, of supply chains and of stakeholders. Projects that bring together electrolyzer manufacturers, CO₂ suppliers, technology licensors and committed offtakers are more likely to succeed, especially when supported by stable policy frameworks. The author’s organization is already partnering across the value chain to develop integrated solutions that make eFuels more cost-efficient and commercially viable.  

There is a genuine opportunity ahead, and the market signals are strengthening. If technology, location and policy can be aligned, eFuels can become not just a decarbonization tool but a scalable energy solution with global impact. The challenge is to act quickly but realistically, and to ensure that regulation and investment move forward together with engineering progress. The world has all the pieces: serious people, serious projects and serious buyers. What is needed now is aligned and sustained commitment. H₂T

About the author

ZINA SKOUFA is Managing Director of Methanol at Johnson Matthey, where she leads the company’s work in supporting sustainable methanol and low-carbon fuel production across global markets.