October 1, 2014

Hazardous Materials: Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains

  • Feler Bose

    Associate Professor of Economics, Anderson University
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Background 

The Pipeline and Hazardous Materials Safety Administration of the Department of Transportation proposed a rule that recommends new requirements for trains transporting a large volume of Class 3 flammable liquids (mostly ethanol and Bakken crude). The intended purpose of this rule is to lessen both the number of train accidents and the consequences that follow when trains carrying flammable liquids spill their contents. The proposed new regulation focuses on several areas, some of which are costly to undertake (tank car integrity) and others that are not so costly (proper classification and characterization of mined liquid and gas). 

Findings

  • The PHMSA fails to show that there is a need for the regulation. The accident rate for crude oil has actually declined by nearly 88 percent despite a 3,900 percent increase in the shipment of crude oil by rail car between 2009 and 2013.
  • The PHMSA needs to justify why it uses Canadian derailments in its accident analysis but not also Canadian shipments in their calculation. This inclusion of the Canadian derailments, but not shipments, biases the agency’s results.   
  • The economic justification for the proposed regulation depends on US railroads experiencing 10 events causing more than a billion dollars in damage each (with at least one such event causing more than $6 billion in damages) within the next 20 years. However, such accidents have never occurred in the United States to date.
  • Many derailments are still under investigation. The PHMSA needs to understand the cause of derailments before proposing solutions.
  • The argument for market failure in insurance markets is not persuasive, as railroads already carry sufficient insurance. 

Recommendations 

  • The PHMSA should carefully analyze the tort regime and insurance markets to determine if there are more efficient and market-oriented means to achieve safety goals.
  • The PHMSA should research the issue of government failure caused by the restriction on competition caused by failure to approve new pipelines.
  • The PHMSA should analyze the safety and efficacy of transporting crude oil with barges, tanker ships, and tanker trucks.

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