Warren Buffett’s coal problem

Warren Buffett

Warren Buffett

Last winter, I traveled to southeastern Montana (brr!) to report on a battle over a coal mine being proposed by Arch Coal, America’s second-biggest coal company, and a coal-carrying railroad that’s needed to transport the coal from the mine to coal-burning power plants, either in the U.S. or in Asia. The railroad, called the Tongue River Railroad, is owned by Arch Coal, by the BNSF Railway, which is a unit of Warren Buffett’s Berkshire Hathaway and by the candy billionaire Forrest Mars Jr.

It’s a fascinating story, for a bunch of reasons. The coal mine and the railroad are interdependent; both will be built, or neither will be. They need the approval of state and federal regulators. And opposing them are an unlikely coalition of Montana cattle ranchers, members of the northern Cheyenne tribe, a small Amish farming community that recently moved to to the state in search of peace and quiet, and some very determined environmental activists from the Northern Plains Resource Council, the National Wildlife Federation and the Sierra Club.

My story was as just published in the May/June issue of by Sierra, the magazine of the Sierra Club, under the headline, Warren Buffett’s Coal Problem. Like the Sierra Club, I think this coal mine is a bad idea–a very bad idea–and that’s one reason why I wanted  to write the story.

Most stories I do have shades of grey. (No, not 50 Shades of Grey!) Is Walmart good for the planet, or not? Is nuclear power a viable climate solution? Will GMO foods have feed the world, or ruin agriculture? Should the government subsidies electric cars? All of these, in my mind, are complicated questions. As a longtime reporter for newspapers and magazines, I’m trained to see both sides. And I can understand and respect the arguments of people on opposite sides of them.

Southeastern Montana isn't a tourist destination, but it's beautiful

Southeastern Montana isn’t a tourist destination, but it’s beautiful

This coal mine is different. The world needs to burn less coal, not more, to deal with the threat of climate change. (Here’s why.)This coal will most likely be shipped to China, which is suffering from terrible air pollution. Ranchers who own land that’s needed by the railroad don’t want to sell it, but they may not have any choice; the railroad owners plan to use the state’s power of eminent domain to force the ranchers to sell, if the rail-line owners can’t negotiate deals with the ranchers. The way of life of the ranchers, some of whose families have tended the land for more than a century, and the Cheyenne, who have been their even longer, is threatened by a coal company and a railroad that will extract coal from the area for a couple of decades and then leave. I wanted to give the ranchers a chance to be heard in my story. “Why should we give up our property rights for a coal mine?” one rancher asked me.  Good question.

Having said that, Warren Buffett’s role here, as well as his broader impact on energy and climate change, is more complex. Buffett, as my story in Sierra notes, has backed solar and wind power through Berkshire’s Mid American Energy Holdings, a big utility company. Matter of fact, the last time I reported about Warren Buffett was for a 2009 FORTUNE cover story called Warren Buffett Takes Charge, about his investment in the Chinese electric car and solar energy company BYD. What’s more, as a common carrier, the BNSF Railway has an obligation to carry coal on its lines.

So what’s the problem? A couple of things, in my view. First, there’s no obligation for Buffett and BNSF to build the Tongue River Railroad, a 42-mile rail line that would link Arch’s Otter Creek coal tracts to the BNSF’s main lines. You could argue that Berkshire should build the line because it will be profitable and increase shareholder value, but we rightly expect CEOs and, especially Buffett, to hold themselves to a higher standard.

Unlike his good friend Bill Gates, Buffett has been virtually silent on the issue of climate change (while speaking out on other public policy issues, like taxation.) Worst of all, BNSF has lobbied on the wrong side of the issue–opposing regulation of coal through industry groups like the American Coalition for Clean Coal Electricity and pushing for coal export facilities in the Pacific Northwest. The railroad touts itself as environmentally friendly but its chairman, Matthew Rose, has ducked questions about climate. At the very  least, Buffett and his company need to be held accountable for being powerful friends of coal.

Like many people, I’m a fan of Warren Buffett. I like his modesty and lack of pretense. I admire his generosity. But his support for coal puts a stain on his reputation, in my view. I invite you to read my story and let me know what you think, on the Sierra site or in the comments below.

Comments

  1. Developing countries can provide their people with the ability to use power through coal. Are you going to deny them affordable and reliable electricity? Deny their hospitals electricity, for example, because you are armchair quarterbacking their lives? You claim this issue is really that black and white.

    • Marc Gunther says:

      Is coal really an “affordable” energy solution for China. The air pollution problems there are severe. And poor people are far more likely to suffer from global climate change than we rich people are.

      Also, why should the government here use power of eminent domain to advance the private interests of a railroad and coal company?

  2. Mark, for some more gray in the Warren Buffett/BNSF picture, you should check out the series on BNSF the Minneapolis Star-Tribune ran 18 months ago. They should have won the Pulitzer for it. I think their Pulitzers this year were consolation prizes.

  3. Tom Stamey says:

    They are going to burn coal whether it comes from the US or not. That coal will provide jobs that the US badly needs. Just one new job will provide income for almost 10 individuals in some form of business. People like you and Sierra club have no business telling somebody else they can’t work and provide for their family.
    Until you and all greenies give up your car, your airplane rides, anything made of , or with oil (even toothpaste), or transported by it or electricity (using coal) you have no damn business interfering in other peoples lively hoods or private lives.

    • Marc Gunther says:

      The problem is, burning coal – the dirtiest form
      of energy – imposes costs and risks on all of us.

      And shouldn’t the ranchers in Montana have the right to hold onto the land their families have worked for more than a century?

      • Marc,

        A typical railroad right-of-way is 100′ wide, or approximately 1/50th of a mile. Therefore, a 42 mile rail line would occupy less than 1 square mile of land. That land area is trivial, relative to the total number of acres of land owned by the ranchers who would be affected. However, the affects of the rail line could be greater if contiguous grazing area was divided by the right-of-way.

        The Fifth Amendment to the US Constitution requires that the ranchers be compensated for the land converted to railroad right-of-way, although there is very little land involved and it has relatively low value. The larger issue would likely be provisions to keep the cattle from crossing the tracks, while providing the ability for the ranchers to move cattle between the grazing areas on either side of the right-of-way.

        I understand that you are more interested in depriving the owners of the coal of the opportunity to exploit the resource for profit than you are in the loss of ~1 square mile of ranch land to railroad right-of-way.

        • Marc Gunther says:

          Ed, you are right that the amount of land is relatively small but you also identify a big concern of the ranchers–that the disruptive effects of the rail line on their cattle would be a big problem for them. Apparently getting cattle under or over the railroad right-of-way is no easy feat. They don’t see why their interests should be trumped by a coal mine.

  4. Tom Stamey says:

    They don’t have to give up the land they own. Why on earth don’t you know that? Now if they sold mineral rights or bought land without the mineral rights then they should have thought about that before buying the land. If they did not they have no place to complain.

    And I also urge you to look at land already reclaimed in Wyoming. It looks like it did before the stip mining took the coal.

    You talk about risks: people in Texas, New Mexico,PA., La, Okla., and to a certain extent California have provided energy and jobs for americans for decades, in fact for almost a century. We had oil wells surrounding our towns, in our school yards, some on Court House lawns, etc. And not only did we live through it, our longivity incresed just a yours did. Now it is you folks turn. Stop being so self centered saying “not in my back yard” and realize jobs is what drives this country and particulary energy jobs. It allows you to live a life of luxury compared to the rest of the world. Grow up.

    • Marc Gunther says:

      I believe you’re mistaken: The ranchers do have to give up their land for the rail line, which has the state’s power of eminent domain behind it, assuming it gets federal regulatory approval. This isn’t about the mineral rights. It’s about using state power to advance a private interests.

      The risk to which I was referring are climate change risk. They’ll be felt in everyone’s backyard.

  5. Marc,

    If you really want to find some grey with the issue, calculate whether the positive climate effect of the small reduction in cattle production would stack up against the negative climate effect of the small increase in coal production. That’s a complicated question – the ranchers might go ranch elsewhere, and the coal buyers might buy very close to the same amount of coal at only ever so slightly higher global prices without this coal on the market. Further, you imply that the ranching may be going away permanently for a temporary coal mining activity. So who knows – you might be surprised by the result.

    It’s very clear that burning more coal is net negative for people around the world. So is eating beef – for the same climate change reason, among others. Would you feel as sorry for small scale coal miners if they were being forced to give up their multi-generation mine due to a new rail line to transport feedlot beef? I have a hunch that you wouldn’t, perhaps exposing an incremental bias (admittedly that’s a fantasy question, but you see my point).

    So as bad as the coal is, I’ll at least see it as a silver lining that some meat production would be going away!

    • Marc Gunther says:

      Ok, Sibley, you got me with this one! I can’t figure out how to even begin to do the calculations BUT my own thinking about beef cattle shifted after spending time with the ranchers who impressed me as very caring stewards of their land. In fact, they would love to find a way to keep their beef on pasture–a lot of the negative impacts accrue when beef are “finished” in feedlots and fed lots of corn and create lots of manure–but that for now the options for doing that are limited.

      I do recognize meat production as a big environmental issue and I’m at work on stories about companies that are trying to deliver alternatives–BeyondMeat and, in a different way, Hampton Creek Foods, which makes a plant-based egg substitute.

  6. Clint McRae says:

    There are several misconceptions within these comments. First, the Surface Transportation Board, a federal entity made up of 3 appointed members in Washington DC, decide if these projects fall within public convenience and neccessity. Another parameter is if the rail line is a common carrier as opposed to a single use. Second, if the STB permits a project, FEDERAL eminent domain can be used to take private land. The law states that a “reasonable offer” must be made to a landowner for the surface. According to whom? If an agreement can’t be reached, the eminent domain process begins. These projects can then commence before an agreement is ever reached. This is wrong. The question then becomes, what is the value of land not for sale?

    If the issue is the public benefit for projects like this, then we would argue for “wheelage” or a royalty on every ton of coal hauled on these lines. Instead of considering landowners such as ourselves as obstacles, break a paradigm and look at landowners as partners. If the response is that the railroad cannot afford this, then public need comes into question.

    We can negotiate crossings of the railroad, but what the public does not know, is that the landowner is required to prove that he has liability insurance before any crossing negotiations can begin. The landowner is not only responsible for the maintenance of the crossing, if anyone is injured or killed on these crossings, the landowner, not the railroad, is liable.

    I live in an area active with coal development. In our community, we have reclaimed land with contaminated water that killed 6 cows in a matter of days. We hav 4 coal fired power plants that have ash ponds in two watersheds that have been leaking for 30 years, contaminating wells of homeowners and businesses in Colstrip, as well as contaminating stockwater wells nearly a mile away from the ponds. The costs of production are being passed on to agriculture, and we are sick of it. All of this has happened within 10 miles of my house.

    Lastly, as landowners, we are not the least bit interested on having our land federally condemned by a private, for profit corporation so coal can be exported to China. The Otter Creek tracts and the Tongue River Railroad are highly speculative, and we as landowners should not be faced with federal condemnatin for a speculative venture. We can do better.

    • Marc Gunther says:

      Clint, thank you for your comment.

      To others reading here–Clint was one of the rancher-landowners who I met in Montana. I think he’s done a great job here of explaining why “eminent domain,” a power of the government, should not be used to take land at whatever price for a railroad whose only purpose is to serve the narrow interests of a coal company and a railroad company.

      • I suspect that the SCOTUS majority which decided Keho might disagree. However, it is interesting that the project which caused the Keho issue has not been built.

  7. Robert Delfs says:

    This is an excellent piece, which I did not see when it first appeared. Like you, I find my feelings about Buffet more complicated now.

    I haven’t seen many updates to this story by anyone — one piece in Washington Spectator, some stuff from local papers in Billings. Will you write about this again?

    Robert Delfs

    • Marc Gunther says:

      Yes, I hope to revisit this story before too long. I am especially interested in the use of the government’s power of eminent domain to make way for a railroad that will serve private interests.

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