EU Offers E-Fuel Exemption to Germany in Bid to Save Combustion Car Ban

(Bloomberg) -- The European Union is offering Germany a declaration that would explain a possible role for so-called e-fuels after a combustion-engine ban takes effect after 2035, setting the stage to end a dispute that stalled the regulation earlier this month.

The commission, the EU’s executive arm, so far hasn’t specified a deadline for when it would put forward a proposal on e-fuels and it’s unclear if the offer will be enough to win over the pro-business lawmakers in Chancellor Olaf Scholz’s government, according to people familiar with the matter. 

It’s unlikely new rules will be offered before EU elections next year due to the length of time needed to pass regulation in Brussels.

German Transport Minister Volker Wissing unexpectedly voiced a last-minute objection last week to the combustion regulation, which had already been approved by the EU’s 27 member states and the European Parliament in October. A final vote — which had been planned for last week and was just a formality — was scrapped because it wouldn’t pass amid Berlin’s objection. 

Decarbonizing transport is seen as a key pillar of the EU’s goal to cut emissions by 55% this decade on the way to climate neutrality by 2050. But cars hold outsize importance in Germany, where the auto industry employs about 800,000 people and has revenue of about €411 billion ($438 billion), making it the largest segment of the economy by far.

The new declaration would change the rules that determine what kinds of cars can take to the road in Europe so that certain vehicles that can only burn e-fuels are permitted after an effective ban on new combustion engine automobiles enters into force, said one of the people, who asked not to be identified because the matter is private.

And given that e-fuels are molecularly identical to conventional fuels, extra technologies or fuel additives would have to be incorporated to ensure new cars can’t use banned fuels after 2035, the person said.

The key question is whether the plan will be acceptable to Wissing, whose FDP party was the driving force behind the 11th-hour intervention that blocked the regulation. 

The Czech Republic is convening transport ministers from like-minded countries generally opposed to stricter emissions rules on Monday in Strasbourg, France, to discuss the matter. Germany and Italy, the two largest countries holding out on the CO2 rules in cars, are due to attend.

A spokesperson from the German transport ministry confirmed that Wissing will take part in the talks on Monday and that Germany is engaged in discussions with the commission, but wouldn’t comment on a new offer from the EU executive. 

Proponents of e-fuels say they’re essentially renewable electricity that’s been converted into a combustible, liquid fuel using CO2 captured from the atmosphere. Critics say that e-fuels are a waste of renewable energy and should be saved for harder-to-decarbonize uses, while some parts of industry also worry that it could create regulatory uncertainty.

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