You want coal to produce fuel, but it's too costly? You have alchemy that can make almost anything from anything? Well, lady, look around you, plants are about half carbon by dry mass..
You can run an engine on woodsmoke... True it doesn't run well, but a gasifier is a thing. Add in some alchemy bullshit and you have yourself a working wood gas engine.
You want coal to produce fuel, but it's too costly? You have alchemy that can make almost anything from anything? Well, lady, look around you, plants are about half carbon by dry mass..
This is probably more like "the author is not actually smart enough", so the alchemy becomes illogical/inefficient due to author's lack of knowledge in the actual science.