(Bloomberg) — The Obama administration proposed phasing out older tank cars tied to a deadly derailment a year ago and lowering speed limits as part of a set of new rules intended to reduce the risks of hauling crude oil by rail.

The proposal, which follows a series of fiery accidents, also would require improved braking systems and testing of oil before being loaded as well as thicker tanker walls, according to Transportation Department statement today. The rule applies to shipments of corn-based ethanol as well as oil.

“Today's proposal represents our most significant progress yet in developing and enforcing new rules to ensure that all flammable liquids, including Bakken crude and ethanol, are transported safely,” Transportation Secretary Anthony Foxx said in Washington.

The regulations are designed to update standards to account for an increase in the use of trains to carry flammable liquids, particularly crude from places like North Dakota's Bakken field where production is soaring beyond the capacity of pipelines. U.S. carloads of oil surged to 415,000 last year from 9,500 in 2008, according to the Transportation Department.

Costs to comply with the proposed rules may be as high as $6 billion over 20 years, the department estimated. Benefits in accidents avoided could be as high as $4.75 billion, it said.

Car Producers

Railroads fell while tank car producers rose in trading after the announcement. Union Pacific Corp., the largest publicly traded U.S. railroad, dropped 0.9% to $101.97 at 12:39 p.m. in New York and CSX Corp. fell 0.8% to $31.10. Trinity Industries Inc., the largest publicly traded rail carmaker, rose 2.4% to $46.11 and Greenbrier Cos. climbed 1.3% to $66.92.

The U.S. proposal, which is subject to 60 days of public comment, would require better descriptions of the cargo, a risk assessment for routes and lower speed limits. Trains made up of non-compliant tank cars would be limited to 40 miles an hour in all areas, or 50 mph if the tank cars meet the new standards, according to the proposal.

The type of tank car implicated in fatal spills, known as the DOT-111, would be phased out or rebuilt to meet the new standards within two years, according to the proposal.

The agency proposed three possible standards for tank cars constructed after Oct. 1, 2015. The first option would have a 9/16th of an inch shell, 1/8th of an inch thicker than models now produced, have electronically controlled pneumatic brakes and be equipped with rollover guards. Trains without enhanced pneumatic brakes could be limited to 30 mph.

Steel Shells

A second option features a thicker steel shell without the brake or rollover features. A third option is based on a model, known as the CPC-1232, that has a 7/16th of an inch steel shell. The industry agreed to start building those units in 2011.

Requiring use of the most robust tank car option would add more than $3 billion in costs to hauling crude-oil by rail over a 20-year period, though with a potential benefit as high as $3.5 billion from avoided damage and death caused by accidents, according to department estimates.

Lowering speeds to 40 miles per hour in all areas, one option considered under the proposed rule, would cost railroads nearly $2.9 billion, but provide benefits as high as $645 million, according to the proposal.

Derailments Predicted

The department predicts about 15 derailments in 2015 and five annually after that, without any changes to current safety standards. Ten accidents are classified as of “higher consequence” over the 20 years, the department predicts.

Edward Hamberger, the chief executive officer of the Association of American Railroads, a Washington-based group that represents companies including Berkshire Hathaway Inc.'s BNSF rail line, said in a statement that the proposal “provides a much-needed pathway for enhancing the safe movement of flammable liquids in the U.S.”

Railroads had lobbied against speed limits as low as 30 miles per hour, saying such a restriction could clog traffic and significantly raise the costs of transporting oil by train. Railroads previously agreed to lower speeds to 40 mph around urban areas.

More Locomotives

In a June 10 presentation to regulators, CSX Corp. said adding electronic controlled pneumatic brakes could cost as much as $15,000 per car and $50,000 per locomotive.

The Transportation Department also said today that its studies concluded that crude from the Bakken region is more volatile and potentially flammable. The American Petroleum Institute issued a statement disputing that characterization.

Safety advocates and officials from North Dakota to New York in communities along the routes of oil trains have pushed regulators to update rules in response to a series of accidents, including an April derailment in downtown Lynchburg, Virginia, that ignited a fire and triggered a spill in the James River.

In July last year, an unattended train rolled downhill, derailing in Lac-Megantic, Quebec, and causing an explosion that killed 47 people, incinerated the town's center.

Senator Charles Schumer, a New York Democrat, said the new rules are “desperately needed,” and urged the adoption of the proposal.

Special Reports /

Puncture-prone rail car to be phased out due to derailment risk

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