Dimethyl Ether, or DME, is a colorless gas which can be used as a fuel in lightly modified diesel engines. DME is usually produced  from synthesis gas, which is a mixture of hydrogen and carbon monoxide. It is also possible to produce DME from carbon dioxide and hydrogen.  The first steps of producing DME are the same as for producing methanol  

Normally the feedstock for the production of the synthesis gas is petroleum based, such as natural gas or coal. However, it is possible to get the hydrogen part of the synthesis gas by electrolysis of water, and the carbon monoxide by collecting it from a source, such as factory emissions or a geothermal borehole. It is the latter method which has been explored in Iceland.

On September 19th, 2008, the Ministry of industry, Orkustofnun, Mitsubishi Heavy Industries, Mitsubishi Corporation and Hekla signed a Memorandum of Understanding (MOU) agreeing to collaborate on investigating potential introduction of various technologies related to a long term vision of zero percent hydrocarbon fuel emissions society in Iceland. As a consequence of this MOU, a feasibility study on the production of DME in Iceland was conducted. The carbon source was chosen to be flue gas from the ELKEM ferrosilicon production plant at Grundartangi. The results of the study were published in a summary report, the main report being confidential.

A figure from the report showing the configuration of the proposed DME plant.