Energy is a universal and necessary requirement for both rail and commercial aviation. Diesel-powered locomotives pull freight on all nonelectrified railways around the world. Gas-powered turbines made intercontinental passenger flight efficient and affordable.  Because many believe fossil-fuel energy unfavorably impacts the environment, there is a growing belief that climate risk must be considered in evaluating transportation portfolio investment opportunities.

On his first day in office, Biden signed an executive order revoking the Keystone XL pipeline permit, signaling climate as a priority. His order effectively shut down a 12-year cross border project that would have carried 830,000 barrels a day of Canadian heavy oil-sand crude to U.S. refiners on the Gulf Coast (U.S. refiners purchase 98% of Canada’s oil exports). According to the Canadian Government, Canada’s proven oil reserves are third in the world behind Venezuela and Saudi Arabia. Canadian producers have limited and costly options for getting their oil to buyers. It trades at a significant discount to the West Texas Intermediate benchmark to cover rail transportation costs. The cheaper Canadian crude makes it one of the most profitable for U.S. refiners. Without the Keystone pipeline, the Burlington Northern Railroad will continue to carry crude as it moves rail tank cars to the Gulf Coast. Railcars are recognized as a more ‘sustainable’ form of investment, whether in terms of CO2 emissions or energy consumption per load when compared to other forms of transport1.  

Aviation’s share of global carbon emissions is significantly below that of cars and trucks. But at high altitudes exhaust contrails form heat-trapping cirrus clouds.  Can carbon-neutral flight be achieved? Boeing committed on January 22nd to ensure all its new commercial aircraft are capable and certified to use 100% ‘sustainable2 aviation fuel’ by 2030 (existing regulations allow aircraft to use a blend of 50% sustainable and 50% conventional jet fuel). Airbus has announced plans to design aircraft that rely on a turbofan design that includes a modified gas-turbine engine running on hydrogen rather than jet fuel (the hydrogen would be stored in tanks located behind the plane’s rear pressure bulkhead). Rolls-Royce committed to using its technological capabilities to play a leading role in enabling aviation, rail, and power generation to reach net-zero carbon by 2050. GE is researching advanced electric propulsion and fuels to achieve carbon-neutral flight. Last December United Airlines pledged to go ‘100 percent carbon neutral’ by 2050 by using carbon removal ‘direct air-carbon-capture technology’ that would remove an equivalent amount of carbon produced by its aircraft and thus allow its planes to fly on fossil fuels forever. Boeing’s 787 and Airbus’s A350 already emit significantly less carbon than the older jets they are replacing by using lighter materials and more efficient engines. 

Climate isn’t the only thing changingGeneral Motors announced on January 28th it will end the sale of ‘all’ gasoline and diesel-powered passenger cars and light sports utility vehicles and will only produce electric-powered cars and SUVs starting in 2035. Transitioning to carbon-free transportation will be difficult to accomplish, even if vigorously pursued. The risks include shifts in policy, technology, and existing equipment valuations.  For insight into opportunities that will be created during this challenge call RESIDCO.

Glenn Davis, 312-635-3161 davis@residco.com

1 “Railcars are a sustainable mode of transportation and play an important role in the industrial supply chain by transporting our country’s most important products across the North American continent in an environmentally-friendly manner.” Trinity Industries.

2 Sustainable aviation fuel reduces CO2 emissions up to 80%. 

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