When will alternative fuels take off?

Biofuels, hydrogen, and sustainable aviation fuel have been mooted as potential low-carbon alternatives to fossil fuels. While they increasingly feature in company transition plans and government policies as an attractive opportunity, there are drawbacks that must be addressed. Will Farrell and Michael Yamoah identify the key issues.

Companies are increasingly exploring the potential of low-carbon fuels, seeing them as an attractive ‘plug in’ solution to some of the challenges associated with the energy transition. On the surface, alternative fuels appear to help companies continue with business as usual, sometimes without the need to wait for the build out of costly new infrastructure. For example, biomethane can be injected directly into gas grids. However, a push into low-carbon fuels, even as an interim solution, is not without risk, such as competition for supply, or regulatory reversals.

For investors, there are also unintended consequences to consider. Land use change can have severe environmental and social consequences, including biodiversity loss, increased greenhouse gas emissions from forest and soil carbon release, and the erosion of food security.

The production of advanced low-carbon fuels, such as green hydrogen, also faces technological constraints. Competition for biomass resources between biofuel production, food, feed, and other bio-based industries can lead to price volatility and supply shortages. The lack of adequate infrastructure for the production, distribution, and use of low-carbon fuels presents another supply constraint.

EOS currently engages over 160 companies where their activities are closely related to low-carbon fuels. We engage on fuel and feedstock selection, and the associated climate, biodiversity, and human rights risks and opportunities. We generally adopt a technology-agnostic approach but routinely inspect companies’ climate transition plans for their robustness and credibility. Where low-carbon fuels are referenced, EOS probes the assumptions being made.

We encourage companies to develop capabilities to deliver decision-based climate scenario analysis, and to address their alignment with a transition scenario, capturing system effects. This improves investors’ understanding and enables them to play a role in influencing the policy environment.

To find out more, read the full article in our Q1 2025 Public Engagement Report.