08.09.22 “A market for synthetic fuels must be allowed to develop” Interview with Hanno Kempermann, CEO of IW Consult, and Dr. Thilo Schaefer, Head of the Research Unit Environment, Energy, Infrastructure at IW Consult • Reading time: 4 min.

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Summary

How much more expensive are electric cars than gasoline- or diesel-powered models? And what role can synthetic fuels play in the European economy? These are the kinds of questions that the experts from IW Consult, a subsidiary of the German Economic Institute in Cologne, are working on. In this interview, CEO Hanno Kempermann and Dr. Thilo Schaefer, Head of the Research Unit Environment, Energy, Infrastructure, discuss the costs and the possibilities of both types of powertrain.

Battery electric vehicles are said to represent the future of mobility. Why do we even need to consider the use of synthetic fuels?

Kempermann: From 2035, the sale of new vehicles with combustion engines will be banned in Europe. But what will happen to the tens of millions of cars that are still running on diesel or gasoline at this point? We also need to look beyond Europe. In Germany, France, and the Scandinavian countries, we have the opportunity to develop an extensive network of charging stations. But in many African and Asian countries, for example, an enormous amount of work is needed before the combustion engine can be replaced. To put it another way, the whole world will not be using electrified powertrains in 2035. Synthetic fuels are one means of making the combustion engine climate neutral.

Hanno Kempermann, CEO of IW Consult

Schaefer: We do not even need to look as far as other continents to see the problem. Europe itself is divided in two. Some countries have already made good progress with electric mobility, but in eastern and southern Europe the situation is completely different. We cannot expect the Czechs or the Bulgarians, for example, to buy electric cars on a grand scale between now and 2035. People who simply cannot afford one will continue driving their old gasoline or diesel car for a few years longer. This means that synthetic fuels are also a very sensible solution for the cars already on the roads in Europe.

Dr. Thilo Schaefer, Head of the Research Unit Environment, Energy, Infrastructure at IW Consult

While we are talking about costs, electric cars are much more expensive at the moment than their conventional equivalents. But, on the other hand, fuel prices are rising. Will people in the lower income groups be able to afford to run a car at all in the future?

Schaefer: A few years ago, we produced a study on behalf of BP entitled “Die große Verteuerung” (The big price rise). In it, we demonstrate that if the price of CO2 increases to such an extent that it leads to changes in behavior, running a vehicle with a combustion engine will become significantly more expensive. On the other hand, electric cars and electricity are not exactly cheap. Overall, we can expect driving to cost us more in the future.

Kempermann: A new study shows that the 15 most popular electric cars have become on average 5,385 euros more expensive over the last twelve months. By contrast, the price of vehicles with combustion engines has only risen by 3,531 euros. This makes electric mobility more costly in relative terms. This trend is likely to continue in the near future, because we are still struggling with supply chain bottlenecks. But I would like to highlight one favorable aspect of electric cars. Electric motors are much less complex than combustion engines. That means that they need less maintenance, which in turn reduces the operating costs. In addition, the purchase price of electric cars should also start to fall at some point. In the long term, we can expect electric cars to be much cheaper than gasoline or diesel models.

Schaefer: From my perspective, this is not a simple either-or situation. We should not see battery electric cars and vehicles with combustion engines as competitors. Both have their advantages and disadvantages depending on the requirements. That is why we should be using both technologies.

To what extent will the German economy benefit from the use of synthetic fuels in cars with combustion engines?

Schaefer: We should not just be talking about the costs from the perspective of consumers, but also about the indirect costs that we are all helping to fund. The existing infrastructure for gasoline and diesel is also suitable for synthetic fuels, but the cost of developing the infrastructure for electric cars will be very high. That is a good reason for using synthetic fuels in certain areas.

Kempermann: There are also direct effects. Throughout Europe, 3.4 million people work directly in the automotive industry and another 7.2 million indirectly. A feasibility study that we have carried out indicates that if the global production of electricity-based fuels increases, around 80 billion euros of added value and 1.2 million new jobs in machinery and plant engineering could be created in Europe.

What does Germany need to do to ensure that we have a sufficient supply of synthetic fuels in the future?

Schaefer: We will still rely in the future on importing a large proportion of our liquid and gaseous fuels from countries such as Chile, Morocco, and Australia, where there is a surplus of renewable energies. But we need to take action, because infrastructure for manufacturing synthetic fuels has yet to be developed in the potential producing countries. That will only happen if we become directly involved on a local level.

What are your feelings about the political debate on synthetic fuels?

Kempermann: The EU originally planned to ban combustion engines completely by 2035. But then the political players found a way to ensure that combustion engines and therefore synthetic fuels were not taken completely out of the running. However, it is entirely possible that the discussion on a ban will soon start all over again. We need to take a more technology-neutral approach to the debate. If there is to be a market for synthetic fuels, then it must be allowed to develop.

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