Francesco Mazzagatti asks: What’s in a name? Renewable or non-renewable

Renewable and Non-Renewable: what’s in a name

Francesco Mazzagatti

The move by the FTSE Russell industry classification committee to change the listing name for a group of energy companies was widely reported and had been anticipated but the impact will be far reaching. The FT and the Guardian ran pieces on this yesterday that presented the conventional view. The FTSE decided to use their periodic review rules to reclassify an entire industry by the environmental impact of its products. So, the Oil and Gas Sector will from now on be known as Non-Renewable Energy and the alternative energy sector will now be known as the Renewable Energy Sector. This sends a clear message to investors about the image and perhaps also the future of those companies that will now be grouped under these respective headings. The decision is based on the putting together of the oil and gas sector with the coal industry in a single category.

While it is an understandable development it reinforces a binary understanding of the environmental impact of the energy sector which reinforces the idea that there are two opposing sides facing each other who are going to do battle. The world of energy companies is not Game of Thrones and this classification system is not helpful in three key ways:

1) It does not reflect the environmental imprint of the energy companies listed, it defines them only in terms of their extractive product not their method of extraction, their multiple product bases or the environmental basis of their operations.

2) It forces a division between different kinds of energy companies, whereas the private sector response to climate change needs to change and evolve energy companies over time — not set out to name and shame them.

3) It places oil, gas and coal in the same classification, which fails to express the different environmental impact of the different fuels concerned and does not reflect the use of these fuels in the supply of electricity to national grids.

One way to understand the problem is from the other way around: think products which in the end define the environmental impact of the fuel used. Is a hybrid car a renewable or a non-renewable? Is a house using solar for six out of twenty-four hours a day renewable or non-renewable? This is the heart of the matter and the key to the way in which this debate has to be refocussed.

Ideology is behind this division of the world. It is ideology on both sides. Oil and Gas companies have painted themselves into a corner in many of these debates by focussing on the fact that there will be decades before the world is using only renewable energy. Alternative energy companies have presented themselves as world saviours as they pursue the generous subsidies available to make their hugely expensive products competitive. The reality is that all these companies are part of the same sector, all these companies need to work with each other and the solution to climate change is a hybrid one and will be for the next fifty years, at least. The world is going to need oil and gas for at least that long and in those fifty years these sources of energy, along with new generation nuclear, are going to have to be used together, developed together and deployed through products that can move seamlessly between them. In other words: it will be the energy from the “non-renewables” that will make the development of sufficient supplies of “renewable” possible over the next century. Every advance in so called Green energy is made possible by the supply of fossil fuels. It is not an ideological binary issue at all and the success of the companies in the field will be defined by the inter-relationship between the two kinds of energy. So, this kind of classification system is not helpful, and it will further embed a siege mentality amongst many in the oil and gas sector and a sense of vindication amongst many in the green energy sector, further deepening the self-images of the two camps. What the world needs is a single, integrated, green energy policy that maximises the use of older energy sources in the creation and distribution of new energy sources. This classification system does not help that process.

Francesco Mazzagatti

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