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Wholesale Banking

Long synonymous with oil and gas, the energy industry is on a mission to expand its focus and explore new technologies. Here’s a look at what’s ahead.

It’s hard to predict the future, but you can be sure that the energy sector will look significantly different 20 years from now than it does today. While companies will still produce fossil fuels in 2040, renewables could account for almost 70% of the world’s energy mix, while nearly 80% less carbon will be emitted into the air, according to a report from ING. Global energy demands will rise by about 28% between now and 2040, but our air should be cleaner and our planet healthier.

Getting to that point won’t be easy. It will take billions of dollars of investments in new technologies, commitments from financial institutions to fund both low-carbon projects and renewable energy projects, and the right incentives from governments to make innovations like carbon capture economically viable.  Right now, one of the big challenges facing the industry is decarbonising energy production, either by introducing more renewables into the global energy mix, producing fossil fuels in a more environmentally efficient way, or reducing the amount of carbon in the air. “We’re talking about decarbonising power generation, increasing penetration rates of renewables, and reducing emissions in the fossil fuel industry,” says Michiel de Haan, global head of energy at ING. 

In order to move to a renewables-powered, zero-carbon planet by 2040, companies, start-ups, academics, and others must look at more innovative ways to speed up that process. And many are doing just that — in the US alone, there are more than 2,500 clean-technology start-ups, according to Crunchbase. Continuous investments in clean energy technology are also required. According to the International Finance Corp., the Paris climate agreement, in which 189 countries pledged to limit global temperature increases, will elicit $23 trillion in new climate-related investment opportunities in emerging markets between now and 2030. In 2019, global clean-energy investments topped $363 billion, while investments into renewables more specifically topped $282 billion in 2019, according to Bloomberg. Those numbers will need to keep rising year after year, says de Haan.

Reducing carbon emissions

One of the most pressing issues for energy companies is carbon reduction. With numerous countries pledging to become carbon-neutral over the next two decades, there’s pressure on businesses in all sectors to cut their emissions. Fortunately, many operations, including some of the world’s largest utilities — such as Duke Energy in the US and Swedish power company Vattenfall — have agreed to become carbon neutral within the next 20 years. However, these companies are not just reducing their carbon footprint because they must, says de Haan. Many realise it’s good for business — more consumers want to work with carbon-conscious companies – and more are also recognising their responsibility to society. “Companies acknowledge that by reducing waste and cutting emissions, they have a better business case,” he says. “They also want to take measures to be more sustainable in general, which all together increases the likelihood of retaining public support for their activities.”

There are several emerging carbon-reducing technologies that have come, or are coming, to market. And de Haan is paying close attention to opportunities around the commercialisation of carbon capture and storage, which is when carbon is pulled out of the air and stored away, often underground in former oil and gas fields. “ING is at the forefront of exploring to what extent carbon capture and storage can be commercially applied,” de Haan says. “We’re working with traditional fossil fuel transportation companies and companies that are operating in depleted gas and oil fields to see if they can accommodate storage.”

In 2020, ING announced plans to reduce financing to upstream oil and gas companies by 19% by 2040, funneling those funds into low-carbon leaders instead. He also sees a lot of opportunities in hydrogen, which he expects to play a substantial role in the transition to a low-carbon society. Hydrogen is a carbon-free energy source, which can be used to power cars, heat homes and more. What’s most intriguing about this chemical element, is that it can be created from natural gas, which means it’s possible to both reduce emissions and create an environmentally friendly energy source. “Hydrogen can be a game changer,” he says. “Sectors like shipping, heavy duty transport and aviation don’t yet have a fossil fuel alternative, but this could be it. The energy and hydrogen stories are joined at the hip.” Another area of interest to de Haan is battery technology, which provides yet another way to produce energy without carbon emissions.

Investing in cleaner energy

The only way for the world to become zero carbon is if companies like ING support the businesses and technologies that are helping the world meet its Paris agreement targets. Besides reducing its lending portfolio exposure to upstream oil and gas companies, ING is committed to stop financing thermal coal-power generation by 2025. In 2019, ING’s lending to individual coal-fired power plants decreased by 43% from the previous year. ING has also said it won’t finance oil extraction from tar sands — an energy extraction method that results in high C02 emissions. While the company will still lend to oil and gas companies, it’s working with energy sector clients to help them facilitate low-carbon production. 

“We have a long history of supporting clients in the energy sector across a range of activities,” says de Haan, “including conventional and renewable power generation, as well as the fossil fuels value chain.” At the same time, ING has committed to helping increase renewable power generation capacity. It finances electricity generation, with renewables— solar, wind, water and geothermal power — accounting for 59% of the company’s power generation lending business at the end of  2019. It's lending funds to battery-creating facilities in California, offshore wind activities in Taiwan, and other companies, both large and small, that are focused on decarbonising the energy sector. “There are ways for us to add value as the rest of the world is accelerating the build-out of renewable power generation,” de Haan says. “It's a very hot market, which means there's a lot of opportunity for investors to deploy capital into these types of businesses.” While it will take a lot of money, time, and effort to reduce the world’s carbon footprint, by 2040, we should be well on our way, says de Haan. “We will have an energy sector,” he says, “that’s more versatile and significantly less reliant on fossil fuels.”

This content was created by Insider Studios (Business Insider) with ING.