As I note in another comment, that specific environmental situation does make steam unusually problematic. In general, rebuilding industrial civilization, I'd seriously look at taking the "advanced steam" design path. Instead of applying higher-precision engineering to replace steam with diesel, use it to improve steam. This is kind of a case of "Your engineers can skip the questionable tech and copy the best of history."

In retrospect, it seems an accident of history that steam was replaced when it was. Maybe in the 1950s, definitely in the 1960s, it looks possible to put together all the best known steam technologies and practices and make locomotives cheaper to run than diesels and that would've remained cheaper at least to the 1980s, possibly longer.

That, of course, assumes you have decent supplies of water and wood and/or coal fuel. Incidentally, steam looks like it has at least as much case to exist in a biofuel economy as a fossil fuel economy. Steam can run on solid fuels, diesel can't. Many biofuels (IE, wood) are solids, and even production of liquid biofuels tends to produce solid waste (IE, bagasse from sugar cane used to produce ethanol).

So, even if you have a biofuel economy supplying internal combustion engines, you'll also be producing a surplus of solid biofuels, readily available for use in steam engines. That is, assuming they, like us, haven't yet developed cheap and easy cellulose-to-ethanol processes.

I recall looking into biofuel yields and finding that, in general, solid biofuels got a lot higher yields per area than liquid biofuels (at least in most climates), which could make up for the lower efficiency of steam power.