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Crude reality: blind spots in the surge of crude by rail and unintended consequences

This op-ed, written by Carlos Murillo, was originally posted by Ottawa’s The Hill Times, in February 2019.

Crude by rail (CBR) is enjoying a moment in the spotlight as record volumes are moving on Canada’s ribbons of steel amidst the ongoing pipeline pinch. Although CBR involves higher transportation costs than pipelines, this shift is worthy of a wider conversation. CBR has implications for Canada’s transportation system, our environment, and society. As of November 2018 (latest available data), 330,000 barrels per day of Canadian crude were exported via rail. This was double the volumes recorded a year ago, with CBR exports now accounting for close to 10 per cent of Canada’s crude exports (compared to less than 1 per cent of the total in 2011).

Lack of adequate pipeline capacity, and the inherent transportation congestion costs plaguing Canadian crudes, has been the main driver behind the rapid surge in CBR since 2011. In turn, Canada’s freight rail system is being transformed by our inability to build efficient transportation infrastructure to move crude to markets. Between 2011 and 2018, rail freight traffic for “fuel oils and crude petroleum”(a category including CBR exports), recorded the second highest traffic increase among all 64 commodities tracked by Statistics Canada in both relative (per cent) and net (tonnage) terms. This category also recorded the highest increase in its share of total tonnage traffic across all commodities, moving to the top whatsixth spot (from 11th). We estimate that about 80 per cent of the changes within this commodity group can be attributed to CBR’s surge.

Pipeline opponents have sought to block new and expanded capacity on the grounds of reducing Canada’s greenhouse gas (GHG) emissions (amongst other reasons). However, the surge in CBR may suggest that lack of incremental pipeline capacity, is in fact, leading to a net increase in Canada’s GHG emissions. Estimating the net increase in emissions from CBR vs. pipeline transport is complex. Results may vary widely depending on several factors, including distances travelled and the fuel mix for the province(s) through which the pipeline would have travelled, as pipelines rely on natural gas and electricity for their fuel needs, while locomotives run mainly on diesel fuel.

However, using data from several sources, The Conference Board of Canada estimates that over the period of 2011 to 2018, cumulative GHG emissions were higher (on a net basis) by 539 thousand tonnes of carbon dioxide equivalent (kt. of CO2 eq.), due to moving CBR exported volumes on railway versus pipeline. To put this number into perspective, this is equivalent to about 85 per cent of the total road transportation GHGs in Prince Edward Island for 2016. What is more, on a relative basis the cumulative (2011-18) GHG emissions of CBR (808 kt. of CO2 eq.) are estimated to be three times higher than what they would have been if those crude volumes were instead transported via pipeline (207 kt. Of CO2 eq.).

Finally, using Environment and Climate Change Canada’s estimates of the social cost of carbon we estimate that the monetary impact of these incremental GHG emissions on Canadian society was $21-million (in 2012) under the base case. In short, GHG emissions and their associated costs are increasing because of policy failures. By providing a new marketing outlet in addition to export destination flexibility, CBR has been a key support for Canada’s oil and gas industry in recent years. Canada’s rail industry has also made significant strides in energy efficiency improvements and GHG emissions intensity reductions over this period. But relative to pipelines, rail remains a less energy efficient and more emissions-intensive alternative to transporting crude oil in Canada. Policymakers and business leaders should pay closer attention to this blind spot, as it impacts the efficiency of Canada’s transportation system, our environment, and it imposes incremental climate change costs on all Canadians.

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