Audi is expanding production of what it says is a nearly carbon neutral kind of gasoline and diesel from entirely renewable sources.

The German automaker, a unit of Volkswagen, said Wednesday that it plans to build a new pilot facility where it will make synthetic “e-diesel” in Laufenburg, Switzerland.

Audi says its e-diesel fuel allows cars to run in a way that is almost carbon neutral — meaning the fuel would not substantially add carbon emissions into the atmosphere, making the fuel potentially far more environmentally friendly.

The graphic below shows how the fuel is made. The process uses electrolysis to split water into hydrogen and oxygen. The oxygen is released into the air, while the hydrogen is combined with carbon dioxide to make hydrocarbons. The carbon dioxide can be drawn from the atmosphere, Audi said.

These hydrocarbons are then separated to produce the synthetic diesel fuel, as well as waxes Audi says can be used by the food, cosmetics and chemical industries. The whole process runs on surplus hydroelectric power, and heat generated during manufacturing can be captured and routed to homes or businesses.

Audi has partnered on the project with German chemical reactor technology company Ineratec and German-Swiss electricity producer and supplier Energiedienst. Audi expects to begin building the factory in early 2018, and plans to begin delivering the e-diesel within the year.
The facility has a planned capacity of 105,669 gallons of fuel per year.

Audi has been working on another pilot e-diesel project since 2014 with the energy technology corporation sunfire in Dresden, Germany. The new project in Laufenberg is the first to use renewable energy to power the factory.

Audi also has its own facility where it makes synthetic methane, which it calls e-gas, for the natural gas-burning Audi g-tron models A3, A4 and A5.

Diesel is a popular fuel in Europe, but it was recently at the center of a scandal that affected Audi and its parent, Volkswagen. Audi cars were among those accused of containing devices designed to evade emissions tests in the United States and Europe.

The negative publicity fueled speculation that diesel engines will lose popularity among consumers, or will simply be unable to meet ever-tighter emissions standards.