Most railroad insurance policies don't come close to covering the potential damages of a major oil-train accident and, if adopted in its current form, a newly proposed U.S. Department of Transportation rule governing the carrying of crude oil by rail won't include any help on that score.
Kathryn A. Wolfe reports:
Those conclusions come from a DOT analysis of its own rule proposed to address the series of troubling derailments across North America as shipments of oil by rail surge.Even if they could, the most insurance coverage available for such accidents tops out at $1 billion per incident. So, who ultimately pays? Taxpayers.
The department issued the analysis Aug. 1, the same day it published its proposed oil train safety rule that is meant to create what Transportation Secretary Anthony Foxx calls a “New World Order” in oil trains regulations, including by requiring sturdier tank cars, tightened speed limits and improved brakes for the trains carrying an ever-greater amount of crude oil through communities from Southern California to Albany, N.Y. [...]
DOT’s analysis says most of the largest railroads commonly carry around $25 million in insurance, though that can rise to as much as $50 million for trains hauling certain kinds of hazardous chemicals. Smaller railroads—such as the one in the Lac-Mégantic disaster — often carry much less than that.
More about this subject can be found below the fold.
DOT's new rule doesn't deal with the insurance issue, but rather proposes to make oil trains safer. This would be accomplished by requiring a two-year phase-out of older tank cars, better brakes and slower speeds, at least in densely populated areas. It also proposes a testing and evaluation regime of all mined gases and liquids.
The train that derailed in Lac-Mégantic was carrying crude oil from wells in the Bakken formation in North Dakota. Some experts say crude oil from that formation contains a higher quantity of volatile components than traditional crude. Consequently, it is more likely than conventional crude to explode if it comes into contact with a flame or even a spark. But other experts, such as this industry group and these private consultants, disagree. The crude oil carried by the Lac-Mégantic train was classified in the least dangerous category once it was loaded onto the train. Canada's Transportation Safety Board later said that classification was in error.
Before the oil was loaded, court documents in a class-action suit show that several companies had categorized that oil as "unusually volatile." Part of the problem is that drillers do little-to-no wellhead testing for volatile components. And it appears that trucking companies don't do much testing either. As Kim Mackrael reports, this illustrates the drawback of loose regulations governing this burgeoning traffic:
A PowerPoint presentation by Irving Oil, dated one month before the accident, indicated that a source sampling program to test the crude was “almost non-existent.” However, the Transportation Safety Board said last year that information it was provided by suppliers referenced a range of different classifications, from Packing Group I (the most dangerous) to Packing Group III (the least dangerous).Requiring standardized testing of crude at the wellhead as well as when the oil is loaded onto trucks and subsequent carriers, as well as requiring better tank cars, better braking and slower train speeds would no doubt improve the chances of avoiding the worst accidents. But, even with the best rules, accidents occur. In the long term, for the sake of the climate, eliminating oil trains should be our goal. But, for now, railroads profiting from the huge surge in oil-by-rail ought to be required to put a lot more insurance coverage on trains carrying more volatile crude.
Who should pay the extra costs of higher premiums? Should it it be oil companies paying a surcharge to the railroads? Or should coverage be totally up to the railroads? You can be pretty certain what the American Petroleum Institute has to say on the matter given its demonstrated interest in the new DOT rule.
Whatever the case, it should not be taxpayers who get stuck with the bill when these inevitable accidents occur.