New Freight Regulations Would Derail US Energy Independence
An abundance of natural resources and a favorable regulatory environment have propelled the rise of the U.S. as the leading global energy producer. But federal regulators are taking aim at the vitality of the country’s freight railroads to negotiate their own prices, which provide a flexible option for energy producers in lieu of pipelines. Rather than helping the economy, federal regulators at the Surface Transportation Board (STB) are considering regulations that would allow them to set railroad prices. Those regulations, if implemented, would harm U.S. businesses, consumers and threaten the country’s energy independence.
When pipelines are politically infeasible or too expensive for nascent energy projects, producers frequently turn to freight railroads. Although rail transportation is more expensive per barrel than pipelines, it is still a widely viable option and is undeniably safe due to marked improvements the past four years.
Despite the important role that freight rail often plays in the American energy industry, the STB wants to claim a greater role in setting the price of railroad contracts. Using an opaque system, the STB has proposed new rules that would enable bureaucrats to distort the market and make certain routes loss-inducing for private companies.
While the proposed regulations might appear a boon for some rail customers, forcing private railroads to endure losses is not a recipe for long-term viability. Indeed, it is ironic that the chemical sector – the most vocal supporter of rail re-regulation – is pushing for rules that would ultimately hinder the movement of their products, that is if increased rate regulation in the rail sector takes hold. This is because such a dynamic would distort a well-functioning market and unfairly pick winners and losers.
When railroads refuse smaller shipments or contracts under $4 million, many energy producers will lose their option of last resort. Without pipelines or railroads, American energy independence would increasingly look more like a pipe dream.
Putting aside the detriment that these regulations would cause to the railroad and energy industries, the proposed rules would also harm consumers. Increased competition and stripping away onerous price regulations within the railroad industry since 1980 has provided American consumers with a benefit to the tune of $10 billion a year. Re-imposing these regulations would undo these consumer benefits.
Moreover, America’s private railroads invest $25 billion each year in infrastructure and support over 1 million jobs across the country. Hauling freight along privately-build railroad lines also keeps goods and wares off publicly funded highways and roads.
Unfortunately, it’s not the first time that the freight railroads have been used as a political boogeyman. While they have long been a target of bureaucratic meddling, several studies have found that the industry is both competitive and fairly priced. Efforts by the STB to impose rate caps or generally impose greater influence in the private market will make rail less competitive, which will divert freight to roads. This will take away from revenue needed to invest in safety technology and infrastructure and will, in general, work counter to the policy agenda of both Democrats and Republicans.
As the United States inches closer to becoming completely energy self-reliant, it is imperative that energy producers and communities across the country have the necessary flexibility to bring energy to the market. Simply put, regulating the price of private freight rail would be a step backwards for American businesses, consumers, and the national interest.
Oliver McPherson-Smith writes for the American Consumer Institute, a non-profit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.