February 20, 2015 / 5:53 PM / 3 years ago

Canada demands oil trains carry more insurance, levy imposed

OTTAWA (Reuters) - Canada will increase the insurance railways must carry when they haul crude oil and impose a levy on shippers to help cover the cost of major accidents in the burgeoning oil-by-rail industry, Transport Minister Lisa Raitt said on Friday.

A freight car for crude oil sits outside the town of Farnham, Quebec, July 10, 2013. REUTERS/Christinne Muschi

Raitt unveiled the measures in a bill which responds largely to the 2013 explosion of a runaway train that leveled the heart of the Quebec village of Lac-Megantic and killed 47 people.

The legislation also gives her department more power to step in if it feels a railway is not being run safely.

“Rail companies will be concerned about the amount of extra regulation that we may be putting in place today, but for the safety of Canadians and protecting communities it is the right way to go,” Raitt told reporters.

With demand for pipelines outstripping capacity, crude is increasingly being shipped on long trains, and Raitt has put a priority on tightening safety and imposing the polluter-pays principle for accidents.

The costs of the cleanup and reconstruction for Lac-Megantic far exceeded the C$25 million ($20 million) insurance carried by the Montreal, Maine & Atlantic Railway, driving the railroad into bankruptcy and leaving Canadian federal and provincial governments to pick up the tab.

Within two years federally regulated railways carrying any crude oil will now have to have insurance of at least C$100 million, ranging up to C$1 billion per incident for annual shipments exceeding 1.5 million tonnes.

The rules cover the Canadian operations of U.S. firms such as BNSF Railroad, which is owned by Berkshire Hathaway Inc, CSX Corp and Union Pacific Corp. [ID:L1N0VU1X0]

Canada will also charge crude oil shippers C$1.65 a tonne - roughly 25 cents a barrel - which will go into a supplementary fund to pay for damages exceeding a railway’s minimum insurance level.

A government official said last year that Ottawa was considering something loosely based on the Ship-Source Oil Pollution Fund, set up in the 1970s to cover maritime oil disasters and financed with levies on tanker shipments. [ID:nL2N0RN2A3]

Friday’s bill allows for the possibility of expanding the levy to cover other dangerous goods, but Raitt said she was focusing on crude because the safety record of oil-by-rail had been deteriorating.

The Railway Association of Canada - which represents the industry - complained the bill should also apply to substances such as chlorine, which the association said could have a severe impact if spilled.

($1=$1.25 Canadian)

Additional reporting by David Ljunggren and Mike De Souza; Editing by Lisa Von Ahn, Leslie Adler, Jeffrey Hodgson and Marguerita Choy

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