Union Pacific Railroad gets a refresh as climate risks climb

May 16, 2014, 2:40 PM UTC

FORTUNE — In an old-guard industry with over 150 years of history, railroad companies like Union Pacific Corporation (UNP) are embracing technology to promote fuel efficiency in the 21st century. The aim: to lower costs and cut fossil fuel gas emissions.

Union Pacific Railroad, the nation’s largest railroad company, has over 8,000 locomotives and serves 23 states west of Chicago, Ill. and New Orleans, La.

Take the work of Michael Iden, the general director of car and locomotive engineering, as one way the industry is challenging itself to think creatively. Iden and a team of other engineers have developed Arrowedge over the last few years, a technology that is intended to make freight trains carrying containers stacked one on top of the other more aerodynamic and therefore more fuel efficient.

After building balsa wood models by hand, Iden took the project to Brigham Young University to tweak further with the help of graduate engineering students. There, they conducted wind tunnel testing for six months to try to perfect the design, which Union Pacific has patented. “The thing that it ultimately shook down into is the streamlined shape, which is kind of like a wedge,” said Iden.

“It’s like NASCAR,” said Union Pacific spokesman Tom Lange about the technology’s ability to reduce drag, decrease the amount of locomotive power to propel the train, and save fuel. And Iden, he added, is the company’s engineering “wizard.”

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But there are no promises just yet from the 48-foot Arrowedge, which has a signature tapered body to let air flow around the train’s top freight containers. “This is a pilot program,” said Lange. “We’re still experimenting with it to see how it works.” Since last September, Union Pacific introduced the technology to its freight service between Joliet, Ill., and Long Beach, Calif.

“We’re constantly looking for ways to improve fuel efficiency and reduce emissions,” he added. “It’s not just good business, it’s a good practice because it affects our employees.”

Other enhancements over the past decade have included “distributed power,” in which additional locomotives are scattered throughout the train for better miles per gallon, along with “stop-start technology” to help conserve fuel when a locomotive is idle.

Since 2000, Union Pacific has notched a 19% improvement in fuel efficiency. “There’s no silver bullet,” said Lange, “it’s a lot of small things that add up.”

Operating huge locomotives burns huge amounts of fuel and creates a great deal of pollution. In 2012, Union Pacific’s locomotives produced more than 11 million metric tons of greenhouse gas, according to the company’s sustainability report. The goal going forward: reduce emissions by 1% annually until 2015.

The American Railroad Association seems to agree. While freight volume is double what it was in 1980, railroads consume the same amount of fuel. How? “Through technological innovations, new investments, improved operating practices, and a lot of hard work,” a railroad association report said.

Still in a data analysis phase of testing, Arrowedge could help reduce fuel in the company’s freight trains, as extreme weather circumstances increasingly incur costs. With the White House report released in early May stating that climate change is here and only getting worse, companies are scrambling to understand what it means. CDP – a non-profit that touts itself as the “only global system for companies and cities to measure, disclose, manage and share vital environmental information” – has a mission to do just that.

Union Pacific is one of the companies listed and, historically, has been praised as a leader for its understanding of the climate change-related problems it faces.

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According to a May 16 report on climate-related risks based on disclosures from 2011-2013, weather changes are an increasing concern across many industries. In two years, almost double the number of companies polled – 45% – believe they’re facing climate risks or expect to in the next five years.

“At this moment in time, we’re moving from a world that’s projecting future risk to one that’s experiencing that risk,” Tom Carnac, president of CDP, said in an interview. He added separately in a statement that “dealing with climate change is now a cost of doing business.”

For Union Pacific, one of the biggest worries comes from extreme weather, including “an increase in the number or intensity of extreme weather events in the U.S,” according to CDP’s study. When extreme weather strikes, Union’s Pacific’s freight business can feel the impact from lower agricultural production, for example. Corn shipments fell 12% in 2012 because of drought. Regardless of weather troubles, the company’s shares have performed well, climbing to $190 from around $150 last year.

“The railroad industry is in some respects more vulnerable to these events than in the past,” said Larry Gross, a rail expert with FTR Transportation Intelligence.

Climate change, however, remains a potential problem on the horizon. Gross added that while “cutting greenhouse gas is a worthy goal, the primary driver is to save fuel, which looms very large in their cost structure.” He added, “ Railroads buy a lot of diesel.”

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