Key Takeaways
- The 90% Pivot: The EU has formally amended its 2035 mandate, moving from a 100% CO2 reduction requirement to 90%, allowing a 10% “Logical Gap.”
- E-Fuel Carve-out: The remaining 10% is specifically reserved for vehicles running on carbon-neutral synthetic fuels (e-fuels) and industrial uses like low-carbon steel transport.
- Efficiency Divide: Battery electric vehicles (BEVs) maintain a massive efficiency advantage (~85% wall-to-wheel) compared to e-fuels (~15% well-to-wheel).
- Geopolitical Pressure: The softening comes as United States EV tax credits expire and European manufacturers face stiff competition from Chinese imports and domestic infrastructure lags.
The 10% Logical Gap
On December 19, 2025, the European Commission did something many environmentalists feared and many manufacturers had quietly lobbied for: it admitted that 100% was an impossible number. The proposal, spearheaded by Commissioner Apostolos Tzitzikostas, revised the landmark 2035 combustion engine ban to include a 10% “Logical Gap.”
This isn’t just a rounding error. It represents a fundamental shift in how Europe views the transition to net-zero. By moving the target to 90% CO2 reduction, the EU has effectively saved the internal combustion engine (ICE) from total extinction, albeit in a highly specialized, “synthetic” form. This 10% quota is designed to accommodate legacy sectors that batteries cannot serve yet: long-haul heavy transport, specialty high-performance maritime, and the continued operation of classic or essential ICE vehicles using e-fuels.
Why now? Pressure has been building for years. As the charging infrastructure struggles to keep pace with sales and the cost of raw materials for lithium-ion cells remain volatile, the “all-in” bet on batteries began to look increasingly like a strategic bottleneck. The 10% Gap is a pressure-relief valve for the European automotive industry.
Technical Deep Dive: The Chemistry of E-Fuels
To understand why the EU is carving out this 10% space, you have to look at the chemistry of the fuels themselves. Synthetic fuels, or e-fuels, are produced by combining captured CO2 with hydrogen produced from renewable electricity.
The process, known as the Fischer-Tropsch synthesis, creates a liquid hydrocarbon that is chemically identical to the gasoline or diesel available in late 2025. Because the CO2 used to make the fuel is captured from the atmosphere (or industrial point sources), burning it in an engine releases only as much carbon as was taken out during production. This makes it “carbon neutral” on paper.
The Energy Density Advantage
The reason the 10% Gap exists is rooted in the physics of energy density.
Liquid fuels have an energy density of approximately 45-50 Megajoules per kilogram (MJ/kg). In contrast, the most advanced lithium-ion batteries available in late 2025 max out at around 0.9-1.2 MJ/kg. Even accounting for the superior thermal efficiency of an electric motor (90%) versus a combustion engine (35-40%), liquid fuels still hold a massive weight advantage for applications requiring extreme range or heavy payloads.
For a 40-ton truck, carrying enough batteries to drive 1,000 kilometers means sacrificing nearly 25% of its cargo capacity to the weight of the battery itself. For these “hard-to-abate” sectors, the 10% Gap isn’t a luxury; it’s a thermodynamic necessity.
The Math: Cost per Megajoule
While e-fuels win on weight, they lose—badly—on cost and efficiency. This is the “Economic Wall” that prevents e-fuels from becoming a mass-market solution even with the new mandate.
When the total energy chain is examined, the math is sobering. To power a car with e-fuels, specific steps must be taken:
- Generate renewable electricity.
- Perform electrolysis to get hydrogen (75% efficient).
- Capture CO2 from the air (highly energy-intensive).
- Synthesize the fuel (60% efficient).
- Transport and refine the liquid.
- Burn it in an engine (35% efficient).
The “well-to-wheel” efficiency of an e-fuel vehicle sits at roughly 13-18%. A BEV, meanwhile, charges a battery (90% efficient) and runs a motor (90% efficient), yielding a total efficiency of roughly 80-85%.
The Price Tag in 2025
As of currently available data, the cost per megajoule delivered to the wheels for an e-fuel vehicle is nearly 4 times that of a battery-electric vehicle. Even with scaling, industry analysis from Agora Energiewende suggests that e-fuel prices will remain at a premium of at least 200% over fossil fuels for the foreseeable future.
Filling a daily commuter with e-fuels is unlikely. Instead, the 10% Gap will be filled by premium users: enthusiasts who want the sound of a flat-six and logistics firms that value refuelling speed over raw fuel cost.
Geopolitical Softening: The United States and China Factors
The EU’s backpedal wasn’t just about chemistry; it was about survival. Two major external factors forced Europe’s hand in late 2025.
1. The United States EV Tax Credit Expiration
Under the current United States administration’s shifts, many of the subsidies that made EVs affordable for the global middle class began to sunset or were diverted into purely domestic manufacturing. This cooled the global EV transition. European carmakers, who had pivoted their entire R&D budgets toward BEVs, suddenly found themselves staring at a market that wasn’t ready to buy at the scale required to meet a 100% mandate.
2. The China Pricing Gap
Chinese manufacturers like BYD and Xiaomi have mastered the LFP (Lithium Iron Phosphate) battery supply chain, allowing them to produce EVs at costs European brands find impossible to match. By keeping the ICE window open via e-fuels, the EU is giving Volkswagen, BMW, and Stellantis a way to protect their high-margin legacy businesses while they continue to refine their EV platforms.
The “Green Steel” Connection
The 10% Gap also includes a provision for “low-carbon steel” transport. The production of steel is one of the world’s largest CO2 contributors. While hydrogen is being used to de-carbonize the production of steel (the reduction of iron ore), the logistics of moving millions of tons of steel across the continent still relies on heavy machinery.
The EU’s amendment allows for the continued use of high-torque combustion engines in these industrial clusters, provided they run on verified e-fuels or hydrogen combustion hybrids. This ensures that the cost of European infrastructure doesn’t skyrocket just as the continent tries to “re-industrialize” to compete with Asia.
Forward-Looking Analysis: 2040 and Beyond
Where does this leave the market? The 10% Gap is likely to be a permanent fixture of the European landscape. While the 90% reduction target is a significant “softening,” it still represents a Herculean effort to decarbonize the vast majority of personal transport.
The Rise of the “Niche Engine”
Expect to see a new generation of ICEs optimized specifically for e-fuels. These engines won’t be the mass-produced units of the 2010s. They will be high-compression, ultra-efficient specialized units designed to squeeze every possible megajoule out of expensive synthetic liquids.
The Charging Crisis
The 10% Gap buys time, but it doesn’t solve the grid problem. Europe still needs to triple its charging capacity by 2030 to even meet the 90% target. By lowering the mandate, the EU has implicitly signaled that they realize the grid cannot currently support a 100% BEV fleet without massive, currently unfunded, upgrades.
What This Means for You
If you are a car buyer or an investor, the landscape just changed.
For the Car Buyer: Don’t panic about your current ICE vehicle. The availability of e-fuels means that even after 2035, there will be a legal (if expensive) way to keep internal combustion cars on the road. The used car market for ICE vehicles may actually see a “rarity premium” as the 2035 deadline approaches.
For the Investor: The focus shifts to the e-fuel supply chain. Companies involved in Carbon Capture and Utilization (CCU) and high-efficiency electrolyzers are the new beneficiaries of this 10% Gap. The “All-EV” stocks may face a period of consolidation as the market realizes the transition is a 90/10 split, not a total takeover.
A Victory for Pragmatism
The EU’s decision to drop the 100% target is a victory for pragmatism over ideology. By acknowledging the “Logical Gap,” Europe is ensuring that its transition to a green economy doesn’t break its industrial backbone in the process. The 2035 ban isn’t dead—it’s just been given a reality check.
As you look toward the next decade, the message is clear: the future is electric, but the internal combustion engine is going to have a very long, very expensive, and very synthetic sunset.
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