5 November 2009: $26 billion for US rail

Warren Buffet, the iconic investor who has proved time and again that it is quite possible to ‘pick winners’, has made his biggest investment so far – $26 billion in one of the main rail operators in the US, Burlington Northern Santa Fe (BNSF).

It is good news that Buffet regards rail as a future winner. In part, this is due to rising oil prices and stricter emissions standards on road transport. However, it is also a wager on coal having a major future in the US:

Coal is the most important item moved on BNSF’s railroads. It accounted for almost half the tonnage moved by BNSF in the first nine months of the 2009 … and a quarter of the company’s revenues … BNSF’s track and rights of way are perfectly positioned to benefit from a massive expansion of the country’s coal-fired output in the next 20 years, coupled with CCS technology to curb the carbon-dioxide emissions.

(See Reuters India: Buffet uses BNSF to bet on coal-fired future.)

In the US and globally, continuing coal use is inevitable, so it is essential that there is major and rapid deployment of CCS. The Obama administration has made some progress on this, though not enough, by awarding subsidy to some large projects:

  • $1.073 billion to the FutureGen Alliance project to build a 275Mw pre-combustion coal plant in Illinois. The private sector members of the Alliance will have to contribute an additional $400 to 600 million.
  • $308 million to Hydrogen Energy International (a joint venture between BP and Rio Tinto), a 250Mw pre-combustion coal plant in California. The project had already been awarded $30 million by the Californian government, but the total cost is expected to be $1 billion,
  • $100 million to Basin Electric Power Cooperative to retrofit post-combustion to 120Mw of a coal power station in North Dakota.

On Tuesday, the US and EU held the first meeting of a new transatlantic Energy Council, and agreed to boost cooperation on energy policy and technology research. Sweden’s Enterprise and Energy Minister, Maud Olofsson, who chaired the meeting, said that US Energy Secretary Chu would “…like to take a look at Europe’s political policy instruments” (see EurActiv: EU-US summit yields energy cooperation). This is rather alarming, since the EU’s policy instruments are weak. Jacques Delors tried but failed to introduce a carbon tax, and the Emissions Trading Scheme has had very little impact on emissions so far. Perhaps Chu will look simply to learn how not to do things!

Olofsson was then asked what Sweden could learn from the US. She replied that the States is good at connecting businesses with politics and commercial development. As she said, “Unfortunately, these areas tend to be more separated from each other in the EU, so I think we can learn from the US in that field.” This is certainly true, though US business does not always play a constructive or progressive role in policy discussions. European governments should talk more with business, as with non-governmental organisations. However, governments must then decide what is in the public interest.

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