Last week a British company called Air Fuel Synthesis (AFS) made a startling announcement: They were producing gasoline from thin air. The media predictably lapped up this story, with one media outlet proclaiming it “the holy grail of the emerging green economy” and another (falsely) claiming that burning the fuel produces “no emissions whatsoever.”

AFS CEO Peter Harrison stated that the process could be commercialized by 2014, “provided we can get the funding going.” Since the company is actively seeking investors, it is important that potential investors understand certain caveats associated with this technology.

Many companies have made these sorts of extraordinary claims in the past only to fall short, consuming taxpayer dollars and private investments in the process. Thus, it is always important to be skeptical. The most basic due diligence starts with the simple adage: If it looks too good to be true, it probably is.

This technology certainly looks too good to be true, so what is the real story?

A company spokesman explained: “We haven’t broken the Second Law of Thermodynamics or anything. We take carbon, we combine it with hydrogen, put it in a reactor to make methanol, and then we take the methanol and put that in another reactor to make petrol. The processes of making synthetic petrol from carbon are well known and have been around for many, many years. The Germans were doing it during the Second World War. The South Africans were doing it during the apartheid years. But they were taking their carbon source from coal. We’re taking our carbon source from the atmosphere.”

Is such a process technically viable? Yes, the process is indeed technically viable. In fact, one could take the same ingredients of air and water and make an incredible variety of things. Air and water could be used to make acetaminophen, insulin, clothing, carpet, or plastics — because all of the required atoms for these materials are contained in air and water.

But none of the media stories I saw highlighted a very basic problem. As the AFS spokesman indicated, the Germans used — and Sasol (NYSE: SSL) continues to use — coal as a source of carbon for production of liquid fuels via a process called Fischer-Tropsch. AFS is using carbon dioxide as their source of carbon to produce liquid fuels, albeit by a very different process.

Consider the difference between coal and carbon dioxide. Coal is an energy-rich fuel, and carbon dioxide is the product of combusting a fuel. A consequence of the Second Law of Thermodynamics mentioned by the AFS spokesman is that it will always require more energy to convert carbon dioxide (or water) into a fuel than you can obtain by burning that fuel. In other words, this process necessarily consumes more energy than it creates. This is the same sort of reason that it is technically feasible to fuel a car with water, but you will always require external energy inputs to do so.

To illustrate the problem, imagine for a moment that the output of their process is connected to the input. They could burn the gasoline to produce carbon dioxide that is fed back into the process to produce more gasoline. But the only way such a process can run is to input large sums of external energy into the process. To produce 1 BTU of gasoline from carbon dioxide will always require the input of more than 1 BTU of external energy, and quite possibly far more than 1 BTU.

On the other hand, there are some circumstances in which a process that is essentially an “energy sink” could be attractive. After all, photosynthesis is an extremely inefficient process, but it is driven by abundant and free solar energy. Thus, one might envision using excess solar power at the peak of the day as a process input if the solar power can’t otherwise be used.

As the process is currently configured, it uses electricity from the grid (which means it is primarily enabled by fossil fuels). Renewable electricity is generally not cheap, so coupling the process to renewable inputs will likely make the process more expensive. Add in the energy sink aspect, and the cost of the fuel produced by this process will almost certainly be several multiples of current petroleum-derived fuels.

What about the claim that burning the fuel produces no emissions? That claim results from a misunderstanding of what it means to be a carbon-neutral fuel. Extracting carbon dioxide from the air to produce fuel could be carbon neutral — if the power inputs were renewable. In that case, the carbon still produces emissions when it is combusted, but they are equivalent to the carbon that was removed from the atmosphere. That is what it means to be carbon neutral, but it does not mean the fuel produces no emissions.

So, while this process does not appear to be a scam, it is unlikely to be economical any time soon. It is of major scientific interest, to be certain. But it is more of a science project at this point. And it is probably many years away from being a suitable investment.