Gone Galt

A fire burns following the oil-tanker-train explosion in Quebec. Photo: AP.

 

With the death toll at 20 people and climbing, last week's oil-tanker-train explosion in Quebec may prove the tipping point in the debate over whether the U.S. should be building new pipelines. With pipelines rather than trains carrying oil, this kind of thing would happen less often, the thinking goes.

This conversation is a worthwhile one. But as far as lessons to be learned from the tragedy are concerned, it misses the point. Pipelines can cut down on the need for trains, but much oil will travel by rail for the foreseeable future.

That's why the Quebec disaster should serve as a wake-up call here on our side of the border. Human error may have caused the disaster at Lac-Mégantic, but American deregulation has left us unprepared to oversee a railroad industry that is expected to transport millions of barrels of crude across the country in the coming years.

We need to make trains safer because we can't abandon them. Otherwise, freight trains will be an oil spill -- or, worse, an explosion -- waiting to happen.

To be sure, the railroad industry has made great progress when it comes to safety since it was deregulated in the 1970s. In 1975, the accident rate was seven times higher than in 2012, thanks in large part to technological improvements.

Those improvements have led railroads to slash the size of the crews that work on the trains, a practice that the Federal Railroad Administration (FRA) has tacitly approved by not mandating a minimum number of workers.

The American railroad in charge of the train at Lac-Mégantic, the Montreal, Maine & Atlantic (MM&A), took this practice to a new extreme. The train that destroyed the tiny Quebec town had a crew of just one man, meaning there was no one overseeing him when he set the brakes the night of July 6.

Single-person crews are typically illegal in Canada (the MM&A had to apply for special permission), but there's no law against them in Maine, where the MM&A is based, or at the federal level. In fact, were it not for union agreements prohibiting the practice, more American railroads would likely do the same.

This is the reality of American railroads, an industry that today reflects a single-minded policy that Washington and state governments have developed in the last 25 years, a policy aimed at keeping freight carriers profitable and not at oversight.

Faced with the imminent bankruptcy of multiple railroads in the 1970s, Congress enacted a series of laws that made it easier for railroads to stay in business by deregulating freight rates and encouraging mergers.

In addition to dropping regulations, the government also reduced oversight of safety practices. The number of annual inspections has decreased, with some railroads undergoing no government inspection at all. With railroad inspectors stretched thin, railroads wind up being mostly self-policing.

The policy has worked for many railroads, as the industry-wide decline in accidents attests.

But the Lac-Mégantic incident also shows the problems of this approach. For starters, the MM&A had an accident rate three times higher than the national average. The type of tank car carrying the oil was also a notoriously accident-prone model that the federal government had recommended against using as early as 1991.

Even today, it's the kind of tank car that carries most of the crude oil coming from North Dakota, and there isn't much that the FRA can do under the law to stop railroads from using it.

In fact, the MM&A's recent history shows how keeping railroads running is far more of a priority to governments than more stringent inspections. Three years ago, Maine paid $20 million to the MM&A to buy 233 miles of track in the northern part of the state. The railroad had threatened to abandon the section after disputes with the paper mills there, which accused the railroad of charging monopolistic rates.

The sale has allowed the MM&A to focus more on oil, which it is particularly well-situated to ship. Its lines lie directly between the North Dakota oil fields and a major East Coast refinery in New Brunswick.

Even if governments wanted to beef up regulation, they're limited in their ability to pick up the slack: The most obvious avenue for funding new inspection programs -- raising taxes on railways -- is precluded by deregulation laws that limit the amount the rail carriers can be taxed.

Funding for more thorough inspections could come from a windfall-profits tax on the North Dakota oil companies that are fueling the new railroad boom. Unfortunately, the Obama administration abandoned efforts to push such a bill through Congress.

Realistically, any solution will have to involve financial incentives for good behavior. The federal government already extends tax breaks to companies that invest in track improvements. A similar program at either the federal or state level could introduce tax incentives for replacing outdated railcars like the ones involved at Lac-Mégantic.

Tax incentives would likely require cross-border cooperation, as oil from North Dakota bound for the East Coast often goes through Canada. But Washington would have a strong bargaining chip with Ottawa in this case: the oil itself. With hundreds of thousands of barrels from North Dakota slated to reach the refinery in New Brunswick, there is as much at stake for oil companies in Canada as there is for those in the U.S.

In the long term, the tragedy last week could very well put an end to trains of crude like the one that destroyed Lac-Mégantic. But oil-by-rail is essential to the U.S.'s oil boom for the immediate future. With oil production in the Upper Midwest growing each month, the stakes have never been higher.

The rails themselves might not be built to handle the boom. The way we regulate railroads definitely isn't.

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