Submitted by CrossProfit on Burlington Northern (BNI)

Chinese government officials have gone on the record stating “(acid rain is) a major threat to food and soil safety”. Pollution levels are rising in tandem with economic growth.

Today approximately 2/3 of China’s electricity is produced by coal-fired power plants discharging over 25 million tons of sulphur dioxides in 2005. Though it seems that the government is saying the right things, little is being done to put a lid on this. China, as a whole, is in a rapid expansion cycle with a continuous ever growing demand for more electricity.

Several hydroelectric projects, modern oil and gas power plants and some nuclear reactors are either in progress or are being planned. Replacing existing coal-fired units is not under consideration. In fact the Chinese master-plan calls for a 20% increase in coal-fired production over the next five years! This should guarantee China’s maintaining the number one spot for global coal consumption, currently at 1/3 of all production.

The State Environmental Protection Administration (SEPA) aside from collecting datum and providing jobs can really do little more. The information collated by the agency seems to be reasonably accurate. SEPA states that industrial discharges have increased 27% in the five year period between 2000 and 2005. So far in 2006 over 50% of the 696 (six hundred and ninety six – we’re talking about China!) cities that are monitored for acid rain have suffered the consequences.

Modern pollution controls on existing coal-fired power plants can reduce the pollution problem. Most of China’s coal-fired plants do not have the advanced technology installed and SEPA is trying to advance legislation that would require specific desulphurization technology for all thermal power plants. Current legislation calls for a broad 10% emissions reduction on 20% more production by 2010. The previous five year 10% target was blatantly ignored without consequence.

In summary, current trends call for a steady increase in coal consumption over the next five to ten years. U.S. coal producers are the obvious beneficiaries but we wouldn’t go-long on pollution control technology companies until there is a political climate change (pun intended) giving SEPA some teeth.

The less obvious long term ‘long’ is Burlington Northern (BNI) with coal transport routes to the west coast. Coal, as a bulk commodity, is a railroads best friend.

Disclosure: Opinion of a CrossProfit analyst, not the consensus at CrossProfit.com, no conflict of interests.
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