The world needs to decarbonize, and that includes the transport sector, which accounts for almost a quarter of the GHG emissions. Electrification and hydrogen-powered transport are increasing significantly. But, a new category of hydrogen-based fuels (synthetic fuels) could be part of the solution as well. Synthetic fuels are fuels that are made from CO2 and low-carbon hydrogen. Their use would reduce GHG emissions and mitigate the negative effects we have on climate change. Also, they are compatible with existing infrastructure, which increases the possibility of becoming part of the energy mix in the short term. Despite the increasing attention, there is a lack of literature that combines qualitative research with quantitative insights and a lack of research on the macro-environment of the synthetic fuel system.

This study aims to provide an extensive overview of the critical internal and external uncertainties that influence the synthetic fuel supply chain. Additionally, the study wants to look at the impact of the identified factors by using scenarios to model future developments. Scholars are highlighting the potential of synthetic fuels, and the International Energy Agency expects them to play a role in the future energy mix. However, high costs and regulatory uncertainty might prove to be significant barriers to their development. The synthetic fuel system is complex, and their are a lot of factors with that impact each other and a lot of uncertainty in terms of how key factors will develop in the future. The research question focuses on the potential of synthetic fuels in the future. This research uses an integrated approach to look at the system, as the important factors are highly dependent of each other.

A PESTEL-analysis was done to highlight the different categories of factors influencing the synthetic fuel supply chain. The Political, Economic, Social, Technological, Environmental and Legal factors together form the driving forces and uncertainties surrounding synthetic fuels. After an extensive literature study to create thorough understanding of the synthetic fuel system, relevant literature was reviewed and discussed to identify the most important factors and uncertainties. These factors are elaborately discussed and then summarized and categorized. The factors with high impact were done reviewed and discussed further with quantitative experiments. The critical uncertainties were quantified by analyzing scenarios in a Mixed-Integer Linear Programming (MILP) model using the program Linny-R. The mix of qualitative and quantitative research makes it possible to understand the synthetic fuel system better. Using Linny-R, the system was modelled in a simplified way by linking the relevant feedstocks, processes and products. The advantage of Linny-R is that it is very suited for looking at integrated systems. The identified factors have a lot of interdependencies and that makes it interesting to look at the impact of uncertainties on multiple factors at the same time.

The results showed the major impact the energy price and the electrolyzer Capex have on the hydrogen and subsequent synthetic fuel prices, as they are at least twice as expensive as fossil fuels on the short term. The high current prices for renewable energy weigh heavily on the hydrogen costs, which in turn has a major impact on the costs for synthetic fuels. The results also show the importance of renewable energy availability, as the average price increases significantly due to the intermittency of renewable energy sources. This intermittency leads to lower capacity factors for the electrolyzer, which increases the electrolysis costs per tonne hydrogen. These two factors are the main cost drivers of hydrogen and finding the right balance between the capacity factor and cheap energy is key for reaching an optimal synthetic fuel price. Technological developments and efficiency gains will decrease the price significantly in the future. However, it will definitely remain challenging to become competitive in the short term. In the longer term, there is potential if adequate regulatory support is provided and hydrogen prices continue to decrease due to innovation and scalability. Hydrogen production, and even more so, synthetic fuel production in countries with favourable conditions for renewable energy could lead to lower prices than local production. A potential disadvantage is more competition and geopolitical tensions making the supply chain riskier, requiring a higher rate of return. Because the model also incorporated the fossil fuel production and the carbon emissions, the impact of policy could also be taken into account. While the results show that the impact of policy measures like carbon pricing is definitely lower than the impact of significant hydrogen cost reductions, it is clear that this policy does make synthetic fuel production more attractive. The integrated approach of the system shows that multiple developments are needed for the ambition of cost-parity for synthetic and fossil fuels. While this cost-parity may never be reached, under the right circumstances the synthetic fuel price can become very close. Additional policy measures like blend-in quota and higher subsidies could further increase the demand.

The results highlight the challenges but also the potential of synthetic fuels. In order to make them part of the inevitable transition to sustainable alternatives for the transport sector, governments, policymakers, international organisations and customers need to align their efforts to collectively (partly) shift towards synthetic fuels. This is a big opportunity to reduce GHG emissions and reach the climate targets from the Paris Agreement.