The One Hybrid You Will Never Drive

When you're on the right track, it helps to be out in front.

Rail operator Norfolk Southern (NYSE:NSC) launched a prototype battery-powered locomotive Monday for low-horsepower applications inside rail yards. Powered by 1,080 12-volt batteries, this zero-emissions rail yard workhorse raises the green technology race on the rails to a new standard.

Until now, recent industry efforts to tweak the efficiency of rail yard locomotives have centered on GenSet technologies, which employ multiple diesel generators to match the scale of power generation to fluctuations in demand. Leading operators like Norfolk Southern, CSX (NYSE:CSX), and Burlington Northern Santa Fe (NYSE:BNI) have invested in these technologies, but the track to a greener rail industry appears to be changing direction.

Where these tracks lead
What I find exciting about this week's prototype launch by Norfolk Southern has more to do with the future than the present. Reduced railyard emissions and related cost savings are welcome advances indeed, but this locomotive paves the way for a revolution in the efficiency of cargo-hauling technology. Significantly, Norfolk Southern's new prototype harnesses the enormous amount of kinetic energy created by the braking process, and conducts it back into the battery bank.

By the end of 2010, Norfolk Southern hopes to test a hybrid locomotive that is powered by both diesel and battery power. Recharging the batteries with the energy from braking will convert a resource now wasted into reduced fuel consumption. General Electric (NYSE:GE) is also steaming down this hybrid locomotive path, and it calculates that the amount of energy harnessed from the braking of a single 207-ton locomotive during a year could power about 160 homes for the equivalent amount of time.

Regardless of the outcome of the cap-and-trade initiative, it's clear that reducing emissions will become an ever-increasing determinant of competitiveness in all industrial sectors. This is a generational trend, and a paradigm shift that is finally taking hold worldwide.

I will take it one step further, and argue that long-term buy-and-hold investors aren't doing proper due diligence if they don't consider steps to reduce emissions when researching an industrial stock. Whether you're drawn to Peabody Energy (NYSE:BTU) for its role in clean-coal initiatives such as FutureGen, or Waste Management (NYSE:WM) for its innovations in converting waste to energy, a demonstrable commitment to blaze trails through the green revolution will be the very currency of long-term success. By advancing the contribution of the railroad industry to this megatrend, Norfolk Southern has chugged ahead of its peers.