Externalities from shipping crude by rail are still disproportionally larger than those from pipeline transport.
My twitter feed exploded late last week. And no, I am not talking about the annoying doubling of the character limit, but the fact that there was a spill of what is currently estimated to be 210,000 gallons (5,000 barrels) of oil from TransCanada’s operational Keystone pipeline in South Dakota. Is this a big spill? From what I can tell, out of the 1542 crude oil pipeline spills the federal government reported since 2010, this ranks as the 13th worst spill. For comparison, the Exxon Valdez spill was 11,000,000 gallons – 50 times larger. Transcanada is also the company behind the proposed controversial Keystone XL pipeline.
The snark was off the charts! See! Pipelines are terrible! We always knew it! Boo Pipelines. (I have blogged about the necessity for the Keystone XL pipeline before and came out against it, for different reasons). The economic and engineering problem, of course, is that oil does not come out of the ground where it is being consumed. So you have to ship it from the well to refineries and from refineries to the final consumer. Your choices for long distance shipping are loud Diesel powered choo choo trains or electricity powered and panther quiet pipelines. Which mode of transport is worse for society? Well, says this annoying economist, let’s back up a second and see what the science says. Isn’t that a novel idea? Scientists know stuff (science comes from the Latin word scientia which literally means knowledge)! And it turns out the science is pretty recent, yet clear on this.
Assume for a moment that you would like to ship a certain quantity of oil from point A to point B. If you (the owner of the oil) ship it via rail, you pay for the cost of operating the train and loading and unloading of the oil. If the train crashes somewhere and there is a spill or an explosion, the local residents are negatively affected by this, which is an external cost you do not have to pay for fully (assuming no recklessness). Same goes for pipelines. If there is a spill, the consequences of the spill are an externality. The literature so far has focused on the consequences of crashes and spills, which is important.
Enter a highly useful paper by Karen Clay, Akshaya Jha, Nick Muller and Randy Walsh. They note that spills and explosions are only one part of the external costs. Diesel powered trains emit a significant amount of local and global air pollution in the process of shipping oil, which are bad for human and polar bear health. Pipelines also consume some energy and generate pollution as pumps need to run to maintain pressure to make what’s in the pipeline flow. Assuming the pumps are electric, this pollution is generated not at the pipeline location, but at the power plant that produces the electricity used. This means the air pollution generated by pipeline operation is not borne by people living near pipelines, but by people living near power plants supplying the electricity. So when we decide whether to ship oil via pipeline or rail as a society, we should take into account the full costs – private cost of shipping and external costs (spills, crashes, local and global air pollution damages).
So what’s the issue here? It’s people. The more people near pollution, the bigger the damages. Railroads tend to go near and through population centers, while pipelines tend to be further away from population centers. Also power plants emit local pollutants higher up (smokestacks), whereas trains emit the pollution at ground level, where the people are.
The paper collects a tremendous amount of data on diesel consumption by trains, routes of rails, location and emissions of power plants. They then calculate the damages from this pollution for all of the oil shipped out of North Dakota in the year 2014 – half of which went by rail and then other half by pipeline. To make a long story short, the authors find that the pollution externalities per barrel mile from rail are almost twice as high as those from pipelines. Maybe more importantly, they find that for rail the damages from spills/crashes are only one-half of the air pollution damages and just one-eighth for pipelines!
What does this mean? As a society if we are going to ship a barrel of oil from point A to B, we are better off shipping it by pipeline than shipping it by rail. However, the externalities from shipping fossil fuels are only a small part of the overall externalities that arise when we combust them to e.g. mine for Bitcoins. The bigger question will always be how we reduce our reliance on fossil fuels. Growing populations, incomes and desires for energy consuming durables will lead to a growing need for electricity, which we hope will come mostly from shiny clean renewables before too long.
So it’s Thanksgiving. I would like to end this post by stating something I am grateful for. I am grateful for what looks to be an insane bonkers below the charts $20.57/MWh auction result for solar in Mexico. There literally are rays of sunshine on the horizon. And to the haters that point to the relatively small penetration of new renewables, I point out to you that adoption of new technologies happens in an S-shaped fashion. Once something new becomes the best game in town everyone wants it. Ten years ago, nobody had a smartphone or saw the need for one. I bet some of you are reading this on your Iphone X screen. Mic Drop.
Maximilian Auffhammer is the George Pardee Professor of International Sustainable Development at the University of California Berkeley. His fields of expertise are environmental and energy economics, with a specific focus on the impacts and regulation of climate change and air pollution.