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North America Crude-by-Rail Safety Update Summary

Core Content

This document provides an overview of the regulatory actions taken by both Canada and the United States in response to a series of crude-by-rail accidents, particularly the derailment in Lynchburg, Virginia, on April 30, 2014. It highlights the growing public and political concerns over the safety of transporting crude oil by rail and outlines the potential impacts of new regulations on the industry.

Main Regulatory Actions

Canada

• Prohibition of Unmodified DOT-111 Tank Cars: Transport Canada issued an order prohibiting the use of unmodified DOT-111 tank cars for carrying flammable liquids such as crude oil and ethanol. This affects approximately 5,000 tank cars, which must be removed from flammable service by late May.
• Retrofitting or Phasing Out DOT-111s: All other DOT-111 tank cars in Canada that do not meet the updated CPC-1232 standard must be retrofitted or phased out within three years (by May 1, 2017).
• Emergency Response Measures:
  • Railroads must have approved emergency response plans for all trains carrying flammable liquids.
  • Trains must reduce speed when carrying dangerous goods.
  • Formal risk evaluations for routing hazardous goods are required.
  • A task force was created to address emergency response capacity.

United States

• Emergency Order for Bakken Crude Oil: On May 7, 2014, the U.S. Department of Transportation (DOT) issued an emergency order requiring railroads transporting more than 1 million gallons of Bakken crude oil to notify states of the expected movements, identify the jurisdictions the trains will pass through, and provide information to emergency responders.
• Safety Advisory: DOT issued a non-mandatory safety advisory encouraging shippers to use only CPC-1232 compliant tank cars for transporting Bakken crude oil.
• Rulemaking Process: On April 30, 2014, the DOT submitted a comprehensive rulemaking package to the Office of Management and Budget (OMB), which is expected to include recommendations on tank car standards, routing, emergency planning, and spill response thresholds. The timeline for finalizing the rule is anticipated to be earlier than previously planned, possibly by the end of 2014.

Key Issues and Uncertainties

Tank Car Standards

• Uncertainty of Final Standard: The Canadian standard (CPC-1232) is preliminary, and it remains unclear if additional requirements will be introduced.
• Timeline for Retrofit/Phaseout: The three-year deadline for retrofitting or phasing out non-compliant tank cars is considered aggressive.
• Impact of New Standards: If the U.S. adopts a stricter standard than CPC-1232, the number of tank cars requiring retrofitting or replacement could increase significantly.
• Industry Capacity: The industry estimates it can produce 33,800 new CPC-1232 compliant tank cars annually. However, the exact number of cars that need retrofitting or replacement depends on the final standard and its scope.

Harmony Between U.S. and Canadian Standards

• Design Standards: Canada has stated it will "meet or exceed" any new U.S. standards. Harmonization is ideal given the frequent cross-border movement of tank cars.
• Timeline for Implementation: It is uncertain whether the U.S. will adopt the same three-year phaseout timeline as Canada. Industry concerns include the potential for shipment delays due to stringent retrofit requirements.
• Cost Estimates: The estimated cost for retrofitting tank cars in the U.S. is $3 billion, though actual costs may vary based on design and modification needs.

Emergency Response and Incident Planning

• Spill Response Plans: Until the May 6 emergency order, spill response plans were only required for tank cars carrying over 42,000 gallons of crude. The new order now requires such plans for all Bakken crude oil trains carrying over 1 million barrels.
• Information and Resource Sharing: Railroads have agreed to spend $5 million on training local first responders and to develop an inventory of emergency response resources. However, this information is not made publicly available unless requested.
• Responsibility of Railroads: There is uncertainty about whether new regulations will require railroads to provide detailed incident planning information to local communities or if they will continue to rely on voluntary measures.

Other Regulatory Considerations

• Classification of Crude Oil: In early March, the DOT issued an emergency order to clarify the legal requirement for classifying hazardous materials. Further testing or processing before shipment may be required under new regulations.
• Routing Adjustments: Railroads have taken voluntary steps to reroute hazardous materials to avoid populated and sensitive areas and to reduce speeds. These actions do not preclude further regulatory intervention.

Conclusion

The regulatory actions in both the U.S. and Canada reflect a growing emphasis on improving the safety of crude-by-rail transport. However, the lack of clarity on the final standards and the timeline for implementation creates uncertainty for the industry. The potential for significant costs and the need for harmonization between the two countries are critical factors that will shape the future of crude-by-rail operations. Additionally, the role of local communities in emergency preparedness remains a key area of concern and potential regulatory focus.