November 3, 2009

Green manufacturers face a coal based energy reality in Buffett's BNSF deal

Green manufacturing proponents may be confused by Berkshire-Hathaway's purchase of Burlington-Northern Sante Fe (BNSF) railroad. When Warren Buffett buys a railroad to signal confidence in the future of the American economy, it complicates the manufacturing industry's future trends in energy usage.

BNSF hauls a lot of coal for energy consumption. Manufacturers can conclude that this move suggests that Buffett is betting on coal as the primary long term energy source. The manufacturing sector is being asked to take a more progressive role in developing and investing in alternative energy and seeing the most prolific investor invest in a coal-based economic future must make some question their own future.

The Burlington Northern deal is "clearly a move to leverage on coal," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"Because Burlington Northern moves coal around the country, I think Buffett is trying to get into coal but doing it in a cheaper way," he said. "It's leveraged against coal's demand without actually having to buy the commodity itself." - quoted in Reuters article

What's a green manufacturer to do?

Of course energy consumption is only one facet of green manufacturing, but it takes significant infrastructure investment to convert manufacturing facilities to an alternative energy source. Considering the required long term investment, Buffett's bet on coal complicates this industrial decision-making process.

Some manufacturers with a more personal interest in alternative energy may make the investment, but most will take the conservative route. Making the switch to alternative energy a slow moving trend in manufacturing.

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