It would be an exaggeration to say that Modern Steam traction will be good for the environment, however it can offer several singular benefits (or less harmful disbenefits) than other forms of traction, especially in niche circumstances in which it is particularly suited.

In a paper to the Institution of Mechanical Engineers in 2003 Roger Waller compared the (measured) emissions from his oil-fired “modern steam” rack locomotives operating in the Swiss and Austrian Alps and reported very significant reductions in NOx compared to diesel locomotives operating the same railways.  In 1999 New Scientist magazine published an article called "Back on Track" that described Waller's work and included the illustration at right, comparing modern steam and diesel emissions.  A more detailed paper describing the emission measurement methods used on Waller's locomotives titled "Modern Steam Traction and the Protection of the Environment" was presented by Reinhard W. Serchinger at Fedecrail's 1998 "Lectures on Steam Locomotive Operation in the 21st Century" held in Barcelona, Spain.

There is a simple reason why the NOx emissions from diesel and other internal combustion engines is much higher than from steam - it is because steam traction uses external combustion which occurs at atmospheric pressure.

Given that the thermal efficiency of modern steam (second generation steam) traction is substantially lower than for diesel, then the haulage of any given load over any given distance will result in higher carbon emissions, simply because more fuel has to be used.  Furthermore if coal is used instead of oil, the carbon emissions rise even higher because coal has a much higher carbon content than oils which are hydrocarbons.

There are circumstances (as Waller points out) where steam gains ground on diesel traction.  For instance when standing idle, a steam loco's furnace can be turned off completely for several hours, thereby producing zero emissions, while the boiler remains under high pressure ready for operation, whereas diesel locomotives tend to be left idling - for hours sometimes - whilst all the time emitting CO₂ and noxious fumes.