The High Costs of Alternate Synthetic Fuels

1. Why Are Synthetic Fuels So Expensive?

The cost disparity between synthetic and fossil fuels is rooted in production challenges and resource constraints:

A) Hydrogen and CO2 Dependencies:

• Ammonia, synthetic kerosene, and methanol all rely on clean hydrogen as a feedstock. The cost of hydrogen, in turn, depends heavily on access to low-carbon electricity, which varies by region.

• Synthetic hydrocarbons also require low-carbon CO2, which can come from biogenic sources or Direct Air Capture (DAC). However, sourcing CO2 from DAC is up to 45% more expensive than biogenic CO2, adding substantial costs.

B) Geographical Variability:

Natural resources like renewable electricity and biogenic CO2 are not distributed evenly across the globe. Regions with abundant, cheap renewable energy will see lower production costs, but these advantages aren’t universal.

C) Lack of Scale:
Unlike fossil fuels, synthetic fuels have yet to benefit fully from economies of scale or widespread technological optimization. However, as production scales up, costs are expected to decline significantly over the coming decades.

2. Who Pays the Price? Consumers and Industry Impact

The ripple effects of high synthetic fuel costs vary significantly between aviation and maritime sectors:

A) Aviation
Fuel costs account for 25–30% of airline operating expenses, meaning any increase in fuel prices has a direct impact on ticket prices. For instance, replacing fossil kerosene with synthetic kerosene could increase the cost of a seven-hour flight by $150–$380, depending on how CO2 is sourced. These increases pose challenges for airlines in attracting cost-sensitive passengers.

B) Maritime Shipping:
In contrast, shipping companies can pass on cost increases with minimal impact on consumers. For example, transporting a kilogram of rice from Thailand to the United States costs only a few cents. Even doubling fuel costs would increase the price by less than 1%. This makes the maritime sector better positioned to absorb the transition to synthetic fuels.:

3. Bridging the Gap: Policy and Investment

Without substantial policy intervention, the cost gap between synthetic and fossil fuels is unlikely to close before 2045—particularly in aviation. However, several strategies could accelerate the transition:

A) Carbon Pricing
By adding a carbon cost to fossil fuels, governments can make synthetic alternatives relatively more attractive. Revenues from carbon pricing can also be used to subsidize synthetic fuel production, helping offset costs in the short term.

B) Targeted Investments:
Meeting the aviation and maritime sectors’ synthetic fuel demand by 2050 will require $3.2 trillion in investments for wind and solar power, electrolyzers, and conversion plants. These investments are comparable to current annual spending on fossil fuels, making them a manageable—though significant—financial effort.

C) Technological Innovation:
Continued advancements in DAC, hydrogen production, and fuel conversion processes will be critical in driving down costs. Policymakers and private investors must work together to scale these technologies.:

While synthetic fuels are not yet cost-competitive, their role in decarbonizing aviation and shipping cannot be overstated. As production scales, policy frameworks mature, and costs decline, these fuels are expected to play a significant role by mid-century.

The question remains: how do we accelerate this timeline without overburdening consumers and industries? The answer lies in a mix of strategic investments, carbon pricing, and international cooperation.

The future of sustainable transport depends on our ability to address these challenges today. It’s a heavy lift—but one the planet cannot afford to delay.