Enhancing the economic viability of e-fuels for aviation and shipping decarbonisation through market-based policy interventions

Abstract This paper examines how market-based policy interventions can enhance the economic viability of e-fuels for aviation and shipping, two hard-to-decarbonise sectors. A novel optimisation-based market penetration assessment model is developed and applied to three case studies, one based on a global shipping scenario with e-Ammonia and e-Methanol, and two based on national scenarios: UK aviation with advanced SAF and e-SAF. The optimisation model quantifies the effectiveness of Contracts-for-Difference (CfD), Carbon Contracts-for-Difference (CCfD), and optimised policy mixes in reducing e-fuel costs. Findings reveal that a combined policy approach can close the price gap between e-fuels and conventional fossil fuels. For instance, a carbon tax of $33.6–$162.8 per tonne CO 2 , paired with subsidies of $32.3–$79.15 per MWh, could lower e-Ammonia costs by 24%, and e-Methanol by 29% in shipping. In the UK aviation sector, CfD schemes designed to stabilise advanced SAF prices have the potential to reduce government support costs by up to 30%, making advanced SAF more competitive. Moreover, implementing CCfDs linked to emissions reductions for e-SAF could achieve cost parity by 2040 when combined with carbon pricing projected at $150 per tonne CO 2 . This research supports a more informed and data-driven policy design, ensuring that economic barriers to synthetic fuel adoption are addressed through a balanced, market-driven approach. Graphical Abstract