Omaha World-Herald | Coal-hauling Railroads are Unlikely to See Benefit from Paris Withdrawal

06.23.17 | Russell Hubbard, Omaha World-Herald

At Omaha-based railroad Union Pacific - which got 14 percent of revenue from hauling coal last quarter - the official reaction to the withdrawal from the fossil-fuel hostile Paris agreement was the opposite of what some might have expected.

Union Pacific rival BNSF Railway, owned by Omaha’s Berkshire Hathaway, likewise had nothing positive to say about the Paris withdrawal, declining to comment on the matter, according to a spokeswoman. Texas-based BNSF is the largest U.S. railroad ahead of Union Pacific by ton-miles. Last year, it derived about 18 percent of its revenue from hauling coal to electricity generating plants.

So if the biz barons seem blasé about the whole deal, it is because they have already crunched the numbers and know what’s what, said Larry Gross, a consultant at FTR Transportation Intelligence.

“In terms of the withdrawal from the Paris accord, the net impact will be exactly zero,” Gross said. “It is a purely symbolic action that will have no direct effect either on the regulation of the industry nor the economics driving change.”

Coal now accounts for about 30 percent of U.S. electric generation, down from 40 percent in 2014. Stricter U.S. emissions regulations have reduced the use of coal, as have lower natural-gas prices - most utilities can burn either fuel and switch around based on what is cheapest.

“Although the issue of coal is among many that have become politicized of late, the economic effects of environmental regulation are of secondary importance and any rollback will not affect the intrinsic economic competition versus natural gas,” Gross said.

And there are secondary environmental effects, as is almost always the case when energy meets policy. With the Trump administration pro-fossil fuel in most every case, energy-intensive natural gas fracking will likely increase even if coal usage doesn’t, as natural gas is itself a fossil fuel, Gross said.

“The proximate cause is the relative economics of coal versus natural gas for base-line power generation,” Gross said.

The tipping point is when natural-gas prices stay below $3 per million British thermal units. When they do, the blue flame is the way to go. When they don’t, coal use tends to rise. Gas prices fell below $3 per million Btu this month, on the way down from $3.50 in May and lower than the five-year high of about $5 in 2014.

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