Three green fuel pathways emerge under China's 15th Five-Year Plan

The policy shift signals a broader transition from a technology reserve stage to large-scale deployment. Yet the industry's development path remains far from straightforward. While green hydrogen, green methanol, green ammonia, sustainable aviation fuel (SAF), biodiesel and fuel ethanol all contribute to decarbonization objectives, no single pathway is positioned to dominate every downstream sector.

GL Consulting expects the green fuel landscape to evolve into a multi-pathway ecosystem, shaped by economics, infrastructure readiness, feedstock availability and sector-specific demand requirements.

Compliance-driven demand will lead growth before cost parity arrives

Cost remains the most significant barrier to large-scale adoption.

Most green fuels continue to carry production costs that are roughly 1.5-2 times higher than their fossil-fuel counterparts. Green hydrogen costs remain well above conventional hydrogen, while green methanol, green ammonia and SAF all face substantial cost premiums versus traditional fuels.

As a result, the next phase of green fuels market growth is unlikely to be driven by direct cost competitiveness. Instead, international carbon regulations are becoming the primary driver for demand growth in the near term.

Policy frameworks such as ReFuelEU Aviation, the EU ETS and CORSIA are creating compliance-driven demand for low-carbon fuels, supporting adoption despite higher production costs. During the 15th FYP period, commercial opportunities are expected to be driven primarily by compliance premiums rather than cost parity.

Three distinct commercialization tiers are taking shape

The development outlook for green fuels is increasingly separating into three distinct tiers.

1) Immediate compliance solutions: biodiesel and HEFA-SAF

Biodiesel and HEFA-based SAF currently represent the most commercially mature decarbonization options.

As drop-in fuels, both can utilize existing engines, storage systems and distribution infrastructure without major modifications. This compatibility significantly lowers deployment barriers and supports rapid adoption where regulatory requirements exist.

However, long-term growth remains constrained by feedstock availability. UCO, the primary feedstock for both biodiesel and HEFA-SAF, imposes a hard ceiling on production expansion. Even under optimistic collection assumptions, available feedstock would support only a portion of China's potential fuel demand.

2) Short- to medium-term commercialization pathway: marine green methanol

Among emerging green fuels, marine green methanol appears to offer the clearest commercialization pathway during the 15th FYP period.

Compared with hydrogen and ammonia, methanol benefits from stronger compatibility with existing storage, transportation and bunkering infrastructure. It has also secured growing support from shipowners seeking practical decarbonization solutions amid tightening international carbon regulations.

China has established a particularly strong position in this segment, accounting for more than 80% of planned global green methanol capacity. At the same time, a significant wave of methanol-fueled vessel deliveries is expected between 2026 and 2028, supporting near-term fuel demand growth.

3) Long-term strategic options: hydrogen, ammonia and e-fuels

Green hydrogen, green ammonia and e-fuels represent the industry's long-term decarbonization destination.

These pathways offer the strongest lifecycle emissions reduction potential and could ultimately support the development of near-zero-carbon energy systems. However, commercialization remains constrained by high production costs, incomplete supply chains and underdeveloped infrastructure.

Hydrogen costs remain significantly above conventional fuel alternatives, while ammonia still faces challenges related to engine technology, safety standards and fuel supply chains. E-fuels remain even further from commercial viability due to extremely high production costs.

Adoption paths are diverging across downstream sectors

While green fuel development is accelerating, adoption pathways are becoming increasingly sector-specific.

1) Road transport: heavy-duty vehicles become the main battleground

The direction of passenger vehicle decarbonization is becoming increasingly clear.

BEVs have established overwhelming advantages in both lifecycle economics and policy support, making them the dominant solution for passenger cars and light commercial vehicles. Competition among green fuels is therefore shifting toward heavy-duty commercial vehicle segments, including long-haul trucking, mining operations, ports and industrial logistics.

LNG currently occupies the strongest position among alternative fuel options due to its cost advantages and mature operating ecosystem. Hydrogen and green methanol remain dependent on policy support and demonstration projects, as economics continue to limit large-scale adoption.

2) Aviation: SAF emerges as the dominant decarbonization route

SAF has become the central pathway for aviation decarbonization.

The sector's growth is increasingly being driven by international compliance mandates rather than voluntary corporate sustainability commitments. Under ReFuelEU Aviation requirements, SAF blending can already reduce overall compliance costs compared with relying entirely on conventional jet fuel and carbon allowances.

During the 15th FYP, China's domestic SAF demand is expected to remain limited, with its SAF sector focused primarily on exports.

3) Shipping: LNG dominates while methanol scales up

Shipping remains at an early transition stage marked by unresolved technology pathways, limited infrastructure and fragmented global policy coordination.

LNG has established itself as the preferred transitional marine fuel due to its mature technology base, extensive bunkering network and ability to meet near- and medium-term decarbonization requirements. LNG-powered vessels currently account for the majority of alternative-fuel vessels globally and continue to dominate new orders.

Methanol, meanwhile, has emerged as the leading green fuel candidate for shipping. A large delivery cycle for methanol-fueled vessels is expected between 2026 and 2028, supporting demand growth throughout the current planning period.

A multi-pathway transition is taking shape

The development of China's green fuel industry is unlikely to be defined by a single winning technology. Instead, multiple pathways are expected to develop simultaneously, each serving different sectors according to its economic viability, infrastructure compatibility and decarbonization performance.

GL Consulting expects near-term commercial opportunities to remain concentrated in compliance-driven markets, particularly SAF exports and marine methanol supply chains. Hydrogen, ammonia and e-fuels will continue to attract strategic investment, but large-scale commercialization is unlikely to be achieved in the near term.

As China's energy transition enters a new phase, policy support, carbon regulations and sector-specific demand are expected to play a more decisive role than cost competitiveness in shaping the future green fuel landscape.

The above content is the major conclusions and highlights extracted from the 'Competing Green Fuel Pathways Under China's 15th FYP' section of the latest China (Energy Transition) Policy Perspective (produced by GL Consulting) report.

The full report examines how geopolitical risks, supply-security priorities and industrial upgrading are reshaping China's energy, chemical and green-fuel sectors during the 15th Five-Year Plan period. It highlights a broader shift in the global chemical industry from cost-driven competition toward a framework increasingly defined by resilience, supply-chain security and value creation. The analysis focuses on chemical feedstock security, refining and petrochemical competitiveness, high-value-added materials, and the commercialization outlook for green fuels including green methanol, SAF, hydrogen and ammonia.

For the full report, please contact glconsulting@mysteel.com.