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Carbon-neutral fuel is energy fuel or energy systems which have no net greenhouse gas emissions or carbon footprint. One class is synthetic fuel (including methane, gasoline, diesel fuel, jet fuel or ammonia) produced from renewable, sustainable or nuclear energy used to hydrogenate carbon dioxide directly captured from the air (DAC), recycled from power plant flue exhaust gas or derived from carbonic acid in seawater. Renewable energy sources include wind turbines, solar panels, and hydroelectric powerful power stations. Another type of renewable energy source is biofuel. Such fuels are potentially carbon-neutral because they do not result in a net increase in atmospheric greenhouse gases.

To the extent that carbon-neutral fuels displace fossil fuels, or if they are produced from waste carbon or seawater carbonic acid, and their combustion is subject to carbon capture at the flue or exhaust pipe, they result in negative carbon dioxide emission and net carbon dioxide removal from the atmosphere, and thus constitute a form of greenhouse gas remediation.

Such power to gas carbon-neutral and carbon-negative fuels can be produced by the electrolysis of water to make hydrogen. Through the Sabatier reaction methane can then be produced which may then be stored to be burned later in power plants (as a synthetic natural gas), transported by pipeline, truck, or tanker ship, or be used in gas to liquids processes such as the Fischer–Tropsch process to make traditional fuels for transportation or heating.

Other carbon-negative fuels include synthetic fuels made from CO2 extracted from the atmosphere. Some companies are working on this.

Similar to regular biofuels, carbon-negative fuels only remain carbon-negative as long as the fuel is not combusted. Upon combustion, the carbon they contain (i.e. taken from industrial sources) is released again into the atmosphere (thus leveling out the environmental benefit). The time between fuel production and combustion of the fuel (the carbon storage time) can thus be quite short (far shorter than the 100 year storage time set for afforestation/reforestation projects under the Kyoto Protocol. or even underground carbon storage.

Carbon-neutral fuels are used in Germany and Iceland for distributed storage of renewable energy, minimizing problems of wind and solar intermittency, and enabling transmission of wind, water, and solar power through existing natural gas pipelines. Such renewable fuels could alleviate the costs and dependency issues of imported fossil fuels without requiring either electrification of the vehicle fleet or conversion to hydrogen or other fuels, enabling continued compatible and affordable vehicles. A 250 kilowatt synthetic methane plant has been built in Germany and it is being scaled up to 10 megawatts.

Carbon credits can also play an important role for carbon-negative fuels.

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