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Graphical abstract Highlights • Comparing alternative fuels with potential for low-carbon intensities. • Technical process design and economic assessment of hydrogen and CO 2 -based fuels. • Environmental life-cycle assessment considering the full carbon cycle. • Identification of methodological challenges in carbon accounting of CO 2 -fuels. Abstract The deployment of low-emission alternative fuels is crucial to decarbonise the transport sector. A number of alternatives like hydrogen or dimethyl ether/methanol synthesised using CO 2 as feedstock for fuel production (hereafter refer to "CO 2 -based fuels") have been proposed to combat climate change. However, the decarbonisation potential of CO 2 -based fuels is under debate because CO 2 is re-emitted to the atmosphere when the fuel is combusted; and the majority of hydrogen still relies on fossil resources, which makes its prospects of being a low-carbon fuel dependent on its manufacturing process. First, this paper investigates the relative economic and environmental performance of hydrogen (produced from conventional steam methane reforming and produced via electrolysis using renewable energy), and CO 2 -based fuels (dimethyl ether and methanol), considering the full carbon cycle. The results reveal that hydrogen produced from steam methane reforming is the most economical option and that hydrogen produced via electrolysis using renewables has the best environmental profile. Whereas the idea of CO 2 -based fuels has recently gained much interest, it has for the foreseeable future rather limited practical relevance since there is no favourable combination of cost and environmental performance. This will only change in the long run and requires that CO 2 is of non-fossil origin, i.e. from biomass combustion or captured from air. Second, this paper address unresolved methodological issues in the assessment of CO 2 -based fuels, such as the possible allocation of emissions to the different sectors involved. The outcomes indicate that implementing different allocation approaches substantially influences the carbon footprint of CO 2 -based fuels. To avoid allocation issues, expanding the boundaries including the entire system and is therefore recommended. [ABSTRACT FROM AUTHOR]