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Buffett's Bet on Rail: What Does It Mean for Transport and Energy?

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by Elana Schor

The financial world was riveted this morning by billionaire investor Warren Buffett's move to take full ownership of the Burlington Northern Santa Fe (BNSF) railroad, a $34 billion deal that ranks as the largest ever executed by Buffett's company, Berkshire Hathaway.

But what does Buffett's purchase mean for the nation's energy future? The so-called "Oracle of Omaha" told CNBC today that his decision was "a bet on the country" as well as a bet on the viability of cleaner transportation:

BNSF last year... moved a ton of goods 470 miles on one gallon of diesel. It releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and...it diminishes highway congestion. Rails last year moved 40 percent, more than 40 percent, over the country. They moved more than all those trucks, just the four big railroads. It's a very effective way of moving goods. I basically believe this country will prosper and you'll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit.


That environmental rationale for Buffett's deal struck some in Washington as dubious. Frank O'Donnell, president of the green group Clean Air Watch, wrote on his website that the BNSF deal was "the biggest climate story of the day," bigger even than the political maneuverings of the Senate environment committee:

This is a $34 billion dollar bet that coal will remain the centerpiece of American energy policy in the future. Buffett clearly believes that coal use will remain strong -- and possibly grow. So he is putting his money on a vision of America with no effective climate policy at all -- or at least one that doesn’t slow coal growth.

BNSF's reliance on coal is indisputable; the black stuff has accounted for nearly half of its tonnage this year, and MarketWatch estimates that 10 percent of U.S. electricity comes from coal hauled by the railroad.

As coal-hauling railroads go, however, BNSF has made an attempt to distinguish itself on the energy efficiency end. The railroad is developing an emissions-free hydrogen-powered locomotive, and in May started to test-run a group of GE locomotives that cuts emissions by 40 percent over previous, dirtier models.

BNSF also has gotten on board the California High Speed Rail Authority's plans for an initial route connecting Merced to Fresno, and its CEO has advocated for a national focus on one initial high-speed project, rather than spreading around the Obama administration's $8 billion investment "like peanut butter."

When putting Buffett's bet into context, however, the corporate identity of BNSF may matter less than the impact of one powerful investor's foray into transportation.

At a time when the job-creation potential of infrastructure spending is increasingly propelling the political debate, Buffett's interest in the transport sector could be a harbinger of greater private-sector involvement to come -- thus bolstering Democratic lawmakers as they make the case for more transit, bridge, and road repair money to hasten the nation's economic recovery.

This piece originally appeared in streetblog.org

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Comments

Trucking replaced rail shipping only because of cheap petro. As petro prices rise, trucking is less and less (financially) sustainable, and rail looks better and better. Truck shipping will likely become more regional and local; rail will emerge again as the trans-continental solution.

It's true that trains haul coal, but it's also true that the coal fires powerplants so that people can watch Glenn Beck on TV.


Posted by: Enoch Root on 4 Nov 09

The cost of track maintenance is also substantially less than for roads.

Signalling and communication infrastructure, on the other hand...


Posted by: Tony Fisk on 4 Nov 09

"Buffett's interest in the transport sector could be a harbinger of greater private-sector involvement to come..."

I think that should how this shrewd investment move needs to be contextualized. Buffet's investment approach is characterized by Berkshire Hathaway's positioning in some sectors that represent stable return and high growth over the long term. BNSF may haul dirty coal, may be years away from developing a truly green engine, but these doesn't detract from the fact that mass transports, railways in particular, have considerably less carbon footprint and are more fuel-efficient than the zillions of private vehicles out there. The shift to a green economy is a long road, we take what we can along the way. Kudos to Mr. Buffet for investing in our green future...sort of.


Posted by: Emmanuel Gonot on 4 Nov 09

What innovative energy tech research or transport IT does Buffet have his fingers in, and could it be used to make high-speed trains?

I smell vertical integration.


Posted by: cherish on 4 Nov 09

Can we hope that it won't change the fact that jobs have gone up dramatically in the capitol city?

Will it mean more jobs in the country?


Posted by: Dredd on 6 Nov 09

One way or the other it's still coal! At least BNSF is looking into a hydrogen powered engine. The reduction of pollution into our precious environment is most important.

Thanks for the post!
RM - InBoundMarketingPR


Posted by: RM - InBoundMarketingPR on 6 Nov 09

We should also note that the other huge portion of BNSF's, and other Class 1 rail carriers' business, is the long-distance hauling of overseas containerized traffic. Rail is comparitively green when viewed next to trucks and planes, but we also need to look at WHAT is being hauled so efficiently. Efficiently hauling trainloads of cheap plastic goods for big-box stores is still a waste.

Steps to localize economies and sever the dependence on long-distance transportation infrastructure altogether would be a much more impressive investment from the private sector, and much more progressive. Mr Buffett saying that he "believe[s] this country will prosper and you'll have more people moving more goods 10 and 20 and 30 years from now" just tells me that he's convinced we can keep growing year upon year without end: a false proposition.


Posted by: Hontz on 6 Nov 09

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