Energy Bill's Impact on the Railroads

[GP-9_Man11786]

 I just read this story on MSNBC about the new climate change/energy bill that just passed the House. From the looks of it, the impact on the railroads coud be profound. Here's what I think could potentialy happen if this passes the Senate:

1. Lower demand for coal will mean railroads could loose one of their biggest revenue sources

2. Increased use of biofuels could mean more ethanol and grain revenue.

3. Stricter emission regulation for locomotives and possibly tax incentives to retire older locomotives and replace them with cleaner power.

4. Move towards electrification, CNG or biofuels for motive power.

5. Increased funder for rapid transit could lead to the construction of new systems and expansion of existing ones.

6. Possible loss of revennue from industries moving to less restrictive countries.

7. Possible increase in intermodal traffic from increased imports as a result of number 6.

8. Grants for capacity expansion.

 It seems to me this bill could do both a lot of good and a lot of bad for the rail industry. What do you guys think?

[carknocker1]

This bill will kill the economy and put us back to the late 19th century and the railroads will suffer the most . Not just coal and oil , but plastics , the steel industry , the auto industry , will all disapear or be so reduced there will be no need for railroads , because the there will be no jobs and no money to buy anything . The jobs that will make a comeback is the buggy whip makers .and cande stick makers .

[petitnj]

 The bill has not yet passed and as the economy continues to sink into the mud, it will be hard for the Senate to pass the bill in the Fall. Stay tuned -- oh,  I forgot you can't use your TV's any more!

[Modelcar]

....This bill seems destined to be rejected by the Senate in current form.

Will need much modification to move any farther.  Surely compromise will have to take place to allow us to use all kind of energy.  Much to be sorted out on this one....

[Anonymous]

GP-9_Man11786

It seems to me this bill could do both a lot of good and a lot of bad for the rail industry. What do you guys think?

 

I cannot see how it can do any good for the rail industry.

The bill will impose carbon caps on the railroads and they will have to either reduce their CO2 output to a level beneath the caps, or purchase carbon credits to raise their caps.  It will undoubtedly be the latter because the amount of CO2 they produce will exceed the caps, and it will cost more to reduce the CO2 than to buy the credits.  They will pass the cost of the credits to their customers because this burden will fall on all railroads equally, and there will be no competitor that the customers can turn to in order to avoid the pass-on.  The burden will also fall on trucking, and they will be able to pass it on to the customers likewise because there will be no competitor that customers can turn to in order to avoid the burden. 

 

However, there may indeed be a disparity between the affect of the burden as passed through railroads compared to it as passed through trucking.  The green thinking is that railroads are more fuel efficient than trucking, and the whole point of cap and trade is to financially punish consumers into becoming more efficient and reducing their consumption of everything.

 

It will probably take a team of czars to design the cap and trade system itself.  It is bound to be an incomprehensible challenge to come up with an equitable system of measuring everyone’s impact on the climate and billing them for it.  This measure has to include not only how much energy is produced from various fuels for the purposes of transportation, heating, cooling, and lighting, but also how much energy it takes to manufacture things.  So the overall cost of all material goods will not only be raised by its transportation caps, but also it will be raised by its manufacturing caps.  Manufactured goods must be rated for carbon impact arising from all phases of their life cycle, from digging up ore to recycling at the end.

 

While the railroads will be able to pass on the cost of caps, there will be direct financial burden that they must bear from loss of business.  The philosophy behind this bill sees coal as public enemy number one, so railroads will be affected by the severe reduction of coal use and transportation.  But the main impact on railroads and other transportation businesses will be a substantial reduction in demand from consumers who will have to make sacrifices in their standard of living in order to reduce their lifestyles to a level of “sustainability” as they say. 

 

There is one little ray of hope though.  This has not passed the Senate yet, and the public is just now beginning to get wind of it, although this has been coming our way since the failed Kyoto Treaty.  During the last week, nearly everyone heard about cap and trade, and they are asking what it is.    

[Railway Man]

GP-9_Man11786

 I just read this story on MSNBC about the new climate change/energy bill that just passed the House. From the looks of it, the impact on the railroads coud be profound. Here's what I think could potentialy happen if this passes the Senate:

1. Lower demand for coal will mean railroads could loose one of their biggest revenue sources

2. Increased use of biofuels could mean more ethanol and grain revenue.

3. Stricter emission regulation for locomotives and possibly tax incentives to retire older locomotives and replace them with cleaner power.

4. Move towards electrification, CNG or biofuels for motive power.

5. Increased funder for rapid transit could lead to the construction of new systems and expansion of existing ones.

6. Possible loss of revennue from industries moving to less restrictive countries.

7. Possible increase in intermodal traffic from increased imports as a result of number 6.

8. Grants for capacity expansion.

 It seems to me this bill could do both a lot of good and a lot of bad for the rail industry. What do you guys think?

 

For the sake of discussion, let's assume the bill passes as-is.  And while I am a bit tempted to offer opinion, instead I'll offer some information that might either pour cold water on the flames, or fan them, depending upon what opinions others might have.

1. I am not particularly concerned that we'll be walking away from a vast resource of coal that we could have mined.  In reality most of the cheaply won coal under shallow cover and near to markets has already been mined.  Much of what remains in the ground is afflicted by discouraging geology, discouraging location, or both, and the price to mine the coal and transport it to market from many once reknowned coal fields is already so onerous that coal consumers I work with are looking well beyond their traditional coal sources, including overseas.  Western Europe and Britain used to be immense coal producers; they are not any longer not because they banned coal mining, but because they've mined out most of the coal except coal in seams so thin, or so interrupted by dikes or faults, or under so much cover, that it's too expensive to mine in any plausible scenario.
   
2. Ethanol revenue and grain revenue are either/or, not both.  Either the railway hauls the grain to a consumer, or the ethanol to the consumer, but the more grain that is converted to ethanol, the less grain available to ship to a consumer.  Shipping grain any appreciable distance to an ethanol plant, as opposed to building an ethanol plant "mine-mouth," is economically disfavorable.
3. I think we'll be into electric propulsion, hybrid propulsion, or other propulsion systems for locomotives long before a CO2 bill has any effect, simply because so many metropolitan areas are already non-attainment areas for PM, ozone, CO, NOX, and SOX,
   
4. Movement of industry to non-emissions regulated countries:  First, most of the "industry" that is creating most of the emissions cannot move, that being generation of transportation, electricity, and domestic heating.  You cannot relocate the furnace for your house, your car, and your power plant to China.  Second, as the cost of transportation rises, it incentives manufacturing to locate as close to the consumer as possible.  What drove the rise of manufacturing offshore is cheap labor and cheap transportation, and both requirements are not likely to obtain in the future.
5. Domestic intermodal is strongly incentived by CO emissions restrictions.

OK, a bit of opinion:  like many things, it's some of this and some of that.  The reason why railways have succeeded for more than 150 years is their adaptability to changing transportation needs.  There are always localized winners and losers, but industry-wide, I'm not hearing anyone I work with starting to panic.

RWM

[henry6]

It was said of the broadcasting industry that the eliminaiton of ciggarette and other tobacco advertising would seal its doom.  That was back in the 60s. How many more radio and TV stations are there today?  So what if certain commodities are lost by the rail industry, there are still a lot of commodities, including people, that need and will need to be transported.  This energy bill is good for everyone in the long run, so don't sweat the small stuff and don't be pushed around by ignorant, self serving, politics.

[Anonymous]

henry6

It was said of the broadcasting industry that the eliminaiton of ciggarette and other tobacco advertising would seal its doom.  That was back in the 60s. How many more radio and TV stations are there today?  So what if certain commodities are lost by the rail industry, there are still a lot of commodities, including people, that need and will need to be transported.  This energy bill is good for everyone in the long run, so don't sweat the small stuff and don't be pushed around by ignorant, self serving, politics.

 

Well it is not law yet, and it may never become law if the population learns what it would mean if it does become law.  But despite the fact that the bill is not yet law, the bill clearly states its objectives in the reduction of CO2 within a timeframe, and this can be translated into the cost to the consumer for significantly higher charges for heating, cooling, lighting, transportation, food, and all consumer goods.  I would not call it “small stuff” as you say.

 

The basic objective is to crush out the fossil fuel economy by punishing taxes, and use the money to create a brand new renewable fuel economy and its market out of whole cloth.  It’s not small stuff.  It is very big, bold, and shocking stuff on a fast-track schedule.

[MP173]

There is a January 8, 2008 tape of then Presidential candidate Barack Obama which would be worth listening to.  I have heard it several times and he basically says that under his plan electricity costs would "skyrocket" to cover cap and trade provisions.

Read into his statement what you want and form your own conclusions.  Hopefully someone will find the tape and link it.

ed

[MP173]

One can easily find the tape of the interview with a San Francisco news paper.  There is an extended portion of the interview, not just the line about "electricity rates would necessarily skyrocket".

I would provide a link, but as we all know...that is beyond my ability at this time.

Type in January 8, 2008 Obama speech cap and trade.

ed

[rrnut282]

henry6

.....  This energy bill is good for everyone in the long run, so don't sweat the small stuff and don't be pushed around by ignorant, self serving, politics.

How can you say that this will benefit everyone in the long run?  Increased costs for anything transported via truck and rail will benefit whom, excactly?

[henry6]

rrnut282

henry6

.....  This energy bill is good for everyone in the long run, so don't sweat the small stuff and don't be pushed around by ignorant, self serving, politics.

How can you say that this will benefit everyone in the long run?  Increased costs for anything transported via truck and rail will benefit whom, excactly?

Answer is in the old line the 100 year old man said that if he knew he was going to live that long he would have taken care of his health better.  Would you rather drive 80 mph with cheap gas now and have either no energy sources or an air quality that prevents one from going outdoors 50 years from now?  Or clean up now, pay a little more, but also be able to do more, enjoy life so to speak, 50 years from now.   We do too much living for the moment without regard for the total future.   

[Modelcar]

MP173

One can easily find the tape of the interview with a San Francisco news paper.  There is an extended portion of the interview, not just the line about "electricity rates would necessarily skyrocket".

I

I certainly am on the side of most folks saying: Certainly we're not in favor of escalating electric rates....{One reason, we have a totally electric home}, but part of that conversation also states of rebates or adjustments to counter increases would have to be worked out.

Certainly, the legistration can not pass in the form that I've read about...More compromising and rethinking surely will have to be done.

I'd like to see leverage {of some kind, we must have}, work on OPEC   nations putting the squeeze on oil prices when demand is low now and storage tanks are overrunning...

[htgguy]

Modelcar

I certainly am on the side of most folks saying: Certainly we're not in favor of escalating electric rates....{One reason, we have a totally electric home}, but part of that conversation also states of rebates or adjustments to counter increases would have to be worked out.

Where do you think the money for the "rebates" will come from? Does that just get created from thin air, or is it taken from one party to be given to a different party?

Remember, electric rates affect the price of everything, from food and clothing to cars to internet access. Will every tenant, homeowner, manufacturer, and service provider be entitled to "rebates or adjustments"? If so who pays for them?

[garr]

Bucyrus

The basic objective is to crush out the fossil fuel economy by punishing taxes, and use the money to create a brand new renewable fuel economy and its market out of whole cloth.  It’s not small stuff.  It is very big, bold, and shocking stuff on a fast-track schedule.

Bucyrus,

I agree with all your points except the one above about the intent being to create a renewable energy source.

"I'm from the government and am here to help..." is a comedic statement until one adds the 4 words which make it painfully true--"...myself to your money."

If the past is any indication, i.e. Social Security Trust Fund, Cap and Trade is going to be a new source of income for the general fund of the US Treasury. As a deep well of new taxes must be found to fund trillions of dollars of new expenditures by our powers to be. If 1% of the Cap and Trade money ever goes toward funding renewable energy I would be amazed.

Even if the taxes generated by Cap and Trade were used for Renewable Energy, it is still unfathomable that the US government would even consider such a huge tax increase in the middle of the current economic situation.

It will only prolong the depths of the current economic crisis.

You don't need real numbers to know things have changed. As recent as mid-'08 along CSX between Atlanta and Catersville trains were a constant parade, almost like shooting fish in a barrel--one by every 20-30 minutes. Today hours go by with nothing in site.

Call me a pessimist, but I only see an increase in intermodal as the only benefit for railroads coming from the Cap and Trade legislation. I don't believe this increase will out weigh the losses that railroads will see from decreased coal traffic and other business lost to more off-shore production caused by Cap and Trade.

 Jay

 

 

Jay

[Anonymous]

garr

Bucyrus

The basic objective is to crush out the fossil fuel economy by punishing taxes, and use the money to create a brand new renewable fuel economy and its market out of whole cloth.  It’s not small stuff.  It is very big, bold, and shocking stuff on a fast-track schedule.

Bucyrus,

I agree with all your points except the one above about the intent being to create a renewable energy source.

"I'm from the government and am here to help..." is a comedic statement until one adds the 4 words which make it painfully true--"...myself to your money."

If the past is any indication, i.e. Social Security Trust Fund, Cap and Trade is going to be a new source of income for the general fund of the US Treasury. As a deep well of new taxes must be found to fund trillions of dollars of new expenditures by our powers to be. If 1% of the Cap and Trade money ever goes toward funding renewable energy I would be amazed.

Even if the taxes generated by Cap and Trade were used for Renewable Energy, it is still unfathomable that the US government would even consider such a huge tax increase in the middle of the current economic situation.

It will only prolong the depths of the current economic crisis.

You don't need real numbers to know things have changed. As recent as mid-'08 along CSX between Atlanta and Catersville trains were a constant parade, almost like shooting fish in a barrel--one by every 20-30 minutes. Today hours go by with nothing in site.

Call me a pessimist, but I only see an increase in intermodal as the only benefit for railroads coming from the Cap and Trade legislation. I don't believe this increase will out weigh the losses that railroads will see from decreased coal traffic and other business lost to more off-shore production caused by Cap and Trade.

 Jay

 

Jay

Jay, 

I guess I did not make myself clear on that point.  I agree with you in that creating a new renewable energy economy is only the ostensible reason for the changes being proposed.  In other words, crushing out the fossil fuel economy, and replacing it with a new “green” economy is really just a pretext to crush out the private sector economy and replace it with a central planning, command and control, government-run economy.  That is the true motivation behind cap and trade.

[garr]

henry6

rrnut282

henry6

.....  This energy bill is good for everyone in the long run, so don't sweat the small stuff and don't be pushed around by ignorant, self serving, politics.

How can you say that this will benefit everyone in the long run?  Increased costs for anything transported via truck and rail will benefit whom, excactly?

Answer is in the old line the 100 year old man said that if he knew he was going to live that long he would have taken care of his health better.  Would you rather drive 80 mph with cheap gas now and have either no energy sources or an air quality that prevents one from going outdoors 50 years from now?  Or clean up now, pay a little more, but also be able to do more, enjoy life so to speak, 50 years from now.   We do too much living for the moment without regard for the total future.   

 

 

Ask that 100 year old man if he thinks the environment was better when he was a youth. Horse poop and urine in the streets, outdoor plumbing, coal fireplaces heating homes, oil lamps, steam locomotives, etc.

 50 years from now, there will be alternative energy sources. However, if the past is any indication, it will be the private industry, free enterprise system finding the solution. The only reason it would have taken 50 years is because government delayed the process by 25 years.

Remember, in the free enterprise system, profits are the catalyst while in government we get taxes and regulations which are the inhibitor or blocker.

Cap and Trade is based on CO2 which is not a pollutant. Without CO2 we have no plant life thus no oxygen. All the environmental data that is being broadcast as the truth is based on computer models. The data going into these models is subject to the bias of the person putting the data in or the one funding the "study".

Jay

 

[oltmannd]

GP-9_Man11786

 I just read this story on MSNBC about the new climate change/energy bill that just passed the House. From the looks of it, the impact on the railroads coud be profound. Here's what I think could potentialy happen if this passes the Senate:

1. Lower demand for coal will mean railroads could loose one of their biggest revenue sources

2. Increased use of biofuels could mean more ethanol and grain revenue.

3. Stricter emission regulation for locomotives and possibly tax incentives to retire older locomotives and replace them with cleaner power.

4. Move towards electrification, CNG or biofuels for motive power.

5. Increased funder for rapid transit could lead to the construction of new systems and expansion of existing ones.

6. Possible loss of revennue from industries moving to less restrictive countries.

7. Possible increase in intermodal traffic from increased imports as a result of number 6.

8. Grants for capacity expansion.

 It seems to me this bill could do both a lot of good and a lot of bad for the rail industry. What do you guys think?

I have an opinion (surprise, surprise!)

I think #1 is going to take a long while to occur.  It's not hard to manage a steadily declining market and make money.  You get to suck the life out of the assets without having to worry about replacement costs, so the cash can be invested in the company elsewhere.

2 & 3 are chump change.

4. Electification is interesting, but I think nothing will get rolling on this soon.

5. is a non issue to frt RRs

6.  This is a wild card.  I think RWM has it right, the labor costs will trump CO2 tax avoidance, but cheap labor has been chased around the globe and there is only one place left to go - Africa. How does the industrialization of Africa effect US frt RRing?  That's the interesting question.

7.  This can be huge and soon and more than offset the loss of coal.  It will be interesting to see how the rail network evolves as heavy haul coal traffic declines and intermodal traffic grows.

[henry6]

Being overlooked is that there is an overabundance of CO2 with less green stuff to absorb it.

Also the government has been a catylist in getting private enterprise to act and not just a tax and spend group.  Much in this country would not be if the government hadn't acted first or otherwise bonded, chartered, enacted, or outright built something.  Just because investors cannot make thier 100% return within 12 months and constant dividens of 30% after that, does not mean it shouldn't be done. 

[carnej1]

carknocker1

This bill will kill the economy and put us back to the late 19th century and the railroads will suffer the most . Not just coal and oil , but plastics , the steel industry , the auto industry , will all disapear or be so reduced there will be no need for railroads , because the there will be no jobs and no money to buy anything . The jobs that will make a comeback is the buggy whip makers .and cande stick makers .

 Given that whale oil and (obviously ) coal are not going to be widely accepted as fuels I think a return to the Victorian age unlikely...

[Modelcar]

htgguy

Where do you think the money for the "rebates" will come from? Does that just get created from thin air

 

Rebates...adjustments....??  I don't have the answer...I'm the messenger, not the creator. 

[henry6]

Date: ca.1835 Note to Congress from the canal companies: 

Government! do something to stop these railroads.  If they succeed we may be out of business!  That would be the end of the good ole' US (or is it "us"?) if we allow them to continue building into our communities, hauling freight and passengers at ungodly speeds.  Just what will happen to the US economy if there are no canals?  The rails will bring criminals into our towns and pour soot and fire thoughout the land!  God created water for us to ride on, if He wanted us to ride trains he would have created track!   Canals are doomed if the railroads are not stopped.

 

[Anonymous]

If manufacturers are motivated to move their business offshore to avoid higher domestic labor costs, I don’t see why they would not be likewise motivated to do so to avoid the domestic cost of carbon credits.  In either case, the motive comes from the need to be able to compete with foreign-based manufacturers who are not hampered by our labor or carbon credit costs. 

 

There are also business costs that rise from moving operations offshore, so a business must weigh that against the lower costs offshore such as labor costs.  If domestic labor costs were to rise here, it would further tip the balance in favor of moving offshore, and more businesses would do so.  Likewise, if you add carbon credit costs to manufacturing, it will tip the balance in favor of moving offshore, and more businesses would do so.

 

Certainly this cap and trade bill will be a powerful motivator that will result in businesses moving their manufacturing to countries which are exempt from such economic burdens.  I do agree that there are some types of business that will not move offshore because it would not be practical and/or the added cost would outweigh the savings from lower labor cost and avoiding cap and trade.  But I am sure that there is much business remaining in the U.S. that will find it economically attractive to leave, and will do so, once this new carbon credit burden is applied here.  

 

When manufacturing moves out of the country, we lose manufacturing jobs.  When that happens, it lowers peoples' standard of living and they lower their consumption.  When that happens, it eliminates the need to transport those things that are no longer consumed. 

[Paul_D_North_Jr]

And - if the business goes overseas, it's certainly going to release CO-2 just as much - if not more, plus different pollutants as well - as it would have here. 

So viewed world-wide, what will have been gained [Q]  Same amount of CO-2, just in a different place - but it's a global phenomenon, and the air currents and wind patterns will bring it back here anyway before too long. 

But the jobs and business tax revenue will be gone, and the economy damaged to some extent as well.  How that affects the railroads will depend on the business and its raw materials and finished products.

In some instances, this kind of result has been called a 'race to the bottom', or 'to the least common denominator'.  Unless something is done pro-actively so that there practically isn't any other place for a carbon-emitting business to move to to escape whatever is put in place here, then we're vulnerable to that.  But it will take a lot more understanding and analysis than we have space for here to get a handle on all of that. 

Finally, keep in mind the points mentioned above regarding our forebear's experiences 150 years ago or so.  They thought whale oil was the only possible source of light - then petroleum - kerosene/ naptha became possible - then electricity was discovered, and the light bulb invented.  All it takes is for some genius to figure out a way to use the Carbon in the coal some other way than burning it = oxidation = combining Carbon with Oxygen to make heat plus CO-2, and/ or to sequester = separate the CO-2 from the exhaust gases and make something useful out of it, like bricks -  - and this will be the problem that was.  Until then - who knows [Q]  

- Paul North.

- Paul North.

[oltmannd]

Bucyrus

If manufacturers are motivated to move their business offshore to avoid higher domestic labor costs, I don’t see why they would not be likewise motivated to do so to avoid the domestic cost of carbon credits. 

Scale.   Labor cost difference is big % of value added.  CO2 taxsmall.  Labor cost differential will determine manufacturing site much, much more than CO2 tax.  It may tip the balance for some, but it won't be the driver.

[oltmannd]

Paul_D_North_Jr

separate the CO-2 from the exhaust gases and make something useful out of it, like bricks -

BuckyBall bricks?

[Anonymous]

Paul_D_North_Jr

And - if the business goes overseas, it's certainly going to release CO-2 just as much - if not more, plus different pollutants as well - as it would have here. 

So viewed world-wide, what will have been gained [Q]  Same amount of CO-2, just in a different place - but it's a global phenomenon, and the air currents and wind patterns will bring it back here anyway before too long. 

The greater objective of cap and trade is that it be international in scope.  Indeed, whatever embodiment of the concept that becomes law in this country will inevitably become linked to other countries either at the outset or soon thereafter.  But we are a long way from agreement on worldwide participation.  That raises this question that is essential to ask if one is to fully understand the cap and trade concept and its objective:  If cap and trade is beneficial, why do whole countries such as China and India refuse to participate? 

[MP173]

Bucyrus:

Great point regarding India and China not signing up.  They have said to our diplomats...dont mess with OUR industrial revolution.  It doesnt hurt their cause when they are sitting on a large amount of our treasury debt.

President Obama recently indicated he is against tariffs on imported goods which have been produced in co2 emitting nations such as China.  Ok...where is the leveling of the playing field?

My guess is the enormous amounts of tax revenue generated by this bill will be used to pay for health care reform. 

ed

[henry6]

If the reasons for moving work off shore were only because of labor costs, however!  There is also taxes, facilities, energy, transportation and the need to make an extroadenary high return on investment (I know a guy who patented a device, engineered it here, etc. Could have had it manufactured here for 3 bucks but sent it overseas to get it done for less than a buck.  He still charged his aimed for retail price at $10) and quickly.  Labor is a neat target which is no longer a threat.  Since  Royal Ron kicked the union out of the control towers, labor is not the force it once was, and therefore should no longer be the whipping boy for the Greedy Old Patriarchs!

[MP173]

Henry:

He had a labor savings of 67% by having it produced overseas.  That is serious $$$$.

President Reagan didnt kick the union out of the towers....they called a strike which was illegal. He enforced the law.

ed