Marine Highway Transport of Toxic Inhalation Hazard Materials (2012)

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45 Background There are several measures or courses of action that could be implemented to encourage the shipment of greater volumes of TIH materials via water. Some would require substantial sums of money, some would require regulatory changes, and others would require operational changes. This chapter will summa- rize the incentives, funding, and mandates that could be put in place to address the challenge of moving TIH materials by water. Various regulatory instruments seek to internalize exter- nal costs and protect the public. These include taxes such as the gasoline tax, emissions standards, market-based controls including cap-and-trade regimes, and limitations on liabil- ity and insurance schemes employed for nuclear reactors, oil spills, or bank deposits. Perhaps the most straightforward way of addressing a situation in which private actors do not take into account the public consequence of their actions is to tax an offending activity or subsidize a beneficial activity. There are at least four obstacles to regulatory reform. The first is the inherently uncertain nature of research to support these reforms. A second and related obstacle is that long-time horizons may be necessary to research new technical options and put them into practice. Third, systems integration chal- lenges confront industry supply chains. Modification of such large, complex technical systems can result in unintended consequences. Fourth, absent regulatory restrictions or taxes on the existing technology, the incentive to adopt a new tech- nology may be insufficient to induce its creation and adoption. There are many proposed measures for dealing with TIH materials that have little or nothing to do with the choice of mode or supply chains. Examples of these measures include the following: • Product substitution (elimination of the product altogether). • Government action to limit use of TIH (force reduction in usage volumes). • Placement of a limit on the distance of domestic shipments. While these measures are important to the overall discus- sion of TIH materials, they are not directly related to the objective of this study and are therefore not included here. Limit Risk to Carriers and Shippers— Institute Insurance Program Ultimately, to move more hazardous cargoes safely via marine highway services, federal action would be required to clearly define the common carriage and financial obligations of the carriers and to accurately reflect the monetary risk and operating costs of moving such cargoes. As noted ear- lier, significant policy determinations would be required to augment the economic viability of marine highway services, potentially including policies related to cost-based pricing of HAZMAT transportation services. The railroads have suggested alternatives for policymak- ers to consider that might be relevant and adaptable to the marine transportation system: • Allow carriers to require TIH shippers to indemnify them for liability above a certain reasonable amount. • Create a fund, to which producers and end users of TIH materials would contribute to pay for damages above a certain amount (similar to “Price-Anderson” protections in the transportation of nuclear energy waste, where a fed- eral pool of funds was created to compensate victims of a nuclear accident that might take place at any point in the supply chain). • Create a statutory liability cap for carriers. • Allow carriers to require shippers to provide evidence of insurance to cover their indemnification requirements (financial responsibility). This would not absolve carriers of responsibility or remove the incentive to be safety conscious, since carriers would con- tinue to assume liability for the risk of transporting TIH materi- C H A P T E R 8 Potential Courses of Action

46 als at the primary level and accept the normal risks of operations and accidents associated with the transport of any commodity. Carriers would, however, be provided assurance that shippers would share the extraordinary risks presented by a potential release of the extra-hazardous TIH materials they chose to ship. The Oil Pollution Act of 1990 (OPA 90) might be a good example of an emergency fund that the marine industry already pays into to cover the costs of catastrophic accidents. OPA 90 authorized the creation of the Oil Spill Liability Trust Fund (OSLTF), managed by the National Pollution Funds Center. The OSLTF is financed by industry via a tax of $0.05 per barrel of imported oil, interest on the fund principal, assessed penalties, and cost recovery from responsible par- ties. The fund totaled a maximum of $2.7 billion as of 2005. The OSLTF can be used for federal cleanup costs and to meet damage claims by government entities, corporations, or indi- viduals. If an accident occurs, the responsible party must cover cleanup and claims up to its liability limit (except that liability for a spill due to gross negligence is not capped). The Oil Pollution Act (OPA 90) also set operational man- dates relating to vessel construction, crew licensing and man- ning, and contingency planning in order to reduce the risk of future accidents. In contrast to the OSLTF, which is not a no-fault model, the desirability of a no-fault insurance model for TIH should be evaluated, since the possibility and extent of damage may be affected by the actions of multiple players. On an international scale, the International Maritime Orga- nization (IMO) developed the IMO Convention on Liability and Compensation for Damage in Connection with the Car- riage of Hazardous and Noxious Substances by Sea (1996). The 1996 Convention establishes strict liability for ships car- rying hazardous cargo involved in an accident, sets limits to liability of the ship owner, and makes insurance up to that limit compulsory. In addition, it establishes the International Hazardous and Noxious Substances Fund (HNS Fund) to address excess liability. The HNS Fund is financed by par- ties that receive specific hazardous cargoes by ship. Perhaps a similar approach could be applied to encourage domestic water transportation of TIH cargoes domestically. An example of a potentially viable insurance scheme is the Federal Deposit Insurance Corporation (FDIC). Funding for the FDIC derives from fees banks are required to pay based on the volume of deposits they hold. FDIC funds are invested in U.S. Treasury securities. The most important—and possibly the most difficult— issue is designing a claims fund, deciding how to finance such a fund, and determining for what purposes its assets should be expended. A continuation of the current liability scheme may actu- ally encourage unnecessary use or shipment of TIH materials because it insulates TIH materials producers and receivers from the risks of their commercial decisions by allowing them to shift those risks to the carriers. Require Safer Equipment and Technology The FRA has published rules that require better puncture resistance for TIH tank cars in either the inner shell or outer jacket, installation of full head shields, and enhanced protec- tion for valves and fittings. They also set a 50-mph speed limit for loaded TIH cars and imposed a requirement to prioritize replacement of all tank cars built from non-normalized steel. The rule specified that these standards should be considered interim tank car standards, applying to all cars built after March 16, 2009. A measure requiring all rail cars to have double shelf cou- plers is also being discussed. Most TIH releases have been caused by another car in the derailment with a single shelf coupler puncturing the TIH car. This solution, which would dramatically reduce the risk of a puncture, unfortunately would cost the railroad the most money. While obviously not the intent, such requirements may in fact motivate shippers to consider the marine mode where viable in order to avoid the increasing cost of new rail cars. In some cases, the newer, heavier rail cars may not be able to call on previously served customers. To date, there has not been much momentum for change among the railroads because their preferred solu- tion where possible is to simply remove TIH from the system rather than “shore up” the system. Since many rail shipments could not be diverted to water due to geographical constraints, it will be important to assess the potential of new regulations that would have the effect of encouraging more TIH material shipments on roadways—a much riskier operating environment. Dilute the Ammonia Another rail-proposed alternative would be to convert anhy- drous ammonia to aqueous ammonia (18 percent solution in water). Although aqueous ammonia is less hazardous, five times as many rail cars would be required to move an equiva- lent amount of ammonia, and in most cases the water would have to be removed and processed at the receiving end, making that alternative impractical, uneconomic, and environmentally unfriendly. Should this alternative gain traction, there will be a strong incentive for shippers to consider other alternatives. Establish Incentives The government has the ability to encourage positive volun- tary behavior through incentives it can offer, such as grants to support the acquisition of equipment or infrastructure

47 modifications and tax incentives to promote facility and supply chain modifications. A tentative first step in this direction has been taken in the form of America’s marine highway grants, with a total amount of $7 million issued by MARAD to encourage marine high- way service development. Marine highway projects are new waterborne transportation services or expansions of existing services operating between U.S. ports or between U.S. ports and ports in Canada in the Great Lakes Saint Lawrence Sea- way. Projects that reduce external cost and provide public benefit by transporting passengers and/or freight (container or wheeled) in support of all or a portion of a marine high- way corridor, connector, or crossing (designated by MARAD) may receive support. It is neither the purpose nor the intent of these grants to shift passengers or freight currently moving by water to another water service, but rather to expand the use of marine transportation where landside transportation is currently being utilized and when the water option represents the best overall option. The program gives preference to those projects or components that present the most financially via- ble transportation services and require the lowest percentage federal share of the costs. Such a program could be modified and augmented to encourage TIH shipments by water. Restrict Movements through High-Population Areas (High Threat Urban Areas) One of the more controversial components of a TIH- related policy that UP suggests should be implemented would be a distance threshold for TIH shipments. UP suggests that any request for a TIH rail shipment of more than 1,000 mi would have to be submitted to the STB to justify that the ship- ment “is in the public interest and cannot be avoided through a less risky or less expensive alternative” (90). Such a policy might even require that shipments over a certain threshold be transported via water when the geography allows. The Chlorine Institute has made the claim that at least one serious potential “unintended consequence” could flow from this type of policy. It is their opinion that forcing custom- ers to acquire their materials from a closer source because of threshold distances would possibly give an unfair pric- ing power to nearby suppliers, in violation of antitrust laws. However, the literature on the subject of transportation of TIH materials does not address this issue. Maintain and Improve the Infrastructure and Guarantee Its Condition For any long-term investment to occur in the marine trans- portation system, there must be a currently viable infrastruc- ture system in place with some insurance of its continued existence. The Inland Waterways Users Board, in conjunc- tion with the U.S. Army Corps of Engineers, has published a proposed capital investment plan that would prioritize new construction and major rehabilitation projects and provide a path toward making the system more reliable. Their plan also provides a mechanism for increasing the funding available for these projects. However, no action has been taken on the plan. Encourage the Location of New Plants and Facilities Near Marine Terminals Economic development (or capital development) grants can be set aside for the use of industries that decide to locate near coastal ports or on inland waterways. These grants can also be used to assist in the construction of pipelines to marine terminals or in the development of the marine ter- minals themselves. Measures taken to encourage locations with access to marine transportation will result directly in an increase in marine shipments. Integrate the Value of Marine Transportation into National Planning Obviously, water transportation cannot serve sections of the country where waterways are not present. Marine ves- sels typically carry larger quantities of materials and, while in port, must be protected from acts of terrorism (this concern is greatest with regard to large international movements of dangerous cargoes into and out of urban ports). Therefore, adequate security measures will play an important role in developing expanded marine services (91). A transportation system that offers resiliency and affordable systems redundancy can assist in incident recovery and deter those who seek to do harm to the United States. Water trans- portation is often not impacted by natural or manmade disas- ters, or if impacted, can frequently resume operations soon after the disabling event. Integrating marine transportation into disaster recovery planning was a premise underlying Title XI shipbuilding assistance and the Maritime Security Program (MSP) administered by MARAD. The Title XI Federal Ship Financing Program provides for a full faith and credit guaran- tee by the U.S. government to promote the growth and mod- ernization of the U.S. merchant marine and U.S. shipyards. This framework could be used to encourage the construction of more vessels for use in TIH shipments. The MSP provides funding to support the operation of 60 U.S.-flag vessels in the foreign commerce of the United States. Participating opera- tors are required to make their ships and commercial trans- portation resources available upon request by the Secretary of Defense during times of war or national emergency. This pro- gram could also be adapted to a TIH-focused system.