The rules call for a rapid phase-out of older tank cars considered unsafe during derailments, and are more aggressive than even some of the toughest proposals yet put forward.

The rail and energy sectors have already expressed concern that the required speed of the phase-outs is not feasible and the potentially billions of dollars in costs will be too high for the small safety improvements they deliver.

Shares of railroad car and equipment manufacturers rose after the announcement.

Under the rules, announced by Canada’s Transport Minister Lisa Raitt and U.S. Transportation Secretary Anthony Foxx, tank cars built before October 2011 known as DOT-111 will be phased out within three years.

DOT-111 tank cars, until now the workhorse of the oil by rail fleet, are considered prone to puncture during accidents, increasing the risk of fire and explosions.

Tank cars built after October 2011 meeting more updated standards, known as CPC-1232, without reinforced hulls will be phased out by 2020, three years faster than rules proposed in Canada earlier this year that were already considered stringent.

“This stronger, safer, more robust tank car will protect communities on both sides of our shared border,” said Raitt.

The tougher standards come nearly two years after a train carrying crude oil came off the rails in the Quebec town of Lac Megantic in July 2013, exploding and killing 47 people. Since then, a series of fiery accidents involving crude trains have occurred in rural areas across North America.

The rules have already created a fierce debate between tank-car owners, railroads and federal regulators. New tank cars must have thicker hulls, head shields to protect the end of each car, electronic pneumatic brakes and pressure-relief valves, all of which have been deemed by regulators to be crucial in improving the safety of transporting oil by rail.

Oil trains will be restricted to a maximum of 80 km/h. Canada last week imposed a separate speed limit for oil trains and other “dangerous goods” trains in urban areas (100,000 people or more), at 65 km/h.

The suite of new regulations is expected to cost an estimated $2.5 billion to implement over the next two decades, two thirds of that to retrofit or retire existing tank cars, according to cost estimated in the rules (all figures US$). The benefits could range from $912 million up to $2.9 billion, they said.

The required electronically controlled pneumatic (ECP) brakes trigger all axles simultaneously rather than one at a time in current design, which safety advocates have said is an important advance.

“Until very recently, the industry consensus was that ECP braking would not likely be a part of the ruling as the technology is not in high volume production and would add significant cost to the train and the rail cars,” said Taylor Robinson, president of PLG Consulting, which provides guidance to companies on crude rail shipments.

“The industry will have to work hard to find solutions that meet the rules in the most cost effective manner,” Robinson said.

The oil industry is concerned that a demand for a 9/16th-inch steel tanker frame will make the existing tanker car obsolete, since upgrades would be too costly.

Charles Drevna, the president of the American Fuel and Petrochemical Manufacturers, a leading voice for the refining industry, said a five-year phase out of existing tank cars — a timetable endorsed by the U.S. National Transportation Safety Board — was unrealistic.

Canada’s Transportation Safety Board chair Kathy Fox, in a separate release Friday, described the new standards and timelines as “important steps” in addressing outstanding recommendations from the board, including those stemming from its Lac Megantic probe.

The TSB, Fox said, will now “carefully review” the new tank car standards and the implementation timeline for retrofits, as per its usual process for reassessment of government responses to safety recommendations.

Canadian Pacific Railway (CP), in a separate release Friday, hailed the joint move to new standards. “Given that much of the traffic moved in tank cars is cross-border and the North American economy is highly integrated, the harmonizing of rail rules and regulations is essential,” the company said.

Shares of companies that manufacture railcars and equipment for railroad freight, such as Greenbrier Co., Trinity Industries, Westinghouse Air Brake Technologies and American Railcar Industries jumped several percent after the announcement.

— Reporting for Reuters by Patrick Rucker and Edward McAllister; additional reporting for Reuters by Randall Palmer, Jarrett Renshaw and Chuck Mikolajczak. Includes files from AGCanada.com Network staff.

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Rail backups in the U.S. Midwest are particularly acute, with farmers expected to harvest record-large corn and soybean crops over the next two months and move much of that grain to market.

The rail sector has promised to spend US$26 billion this year to improve service but Senator Jay Rockefeller, chairman of the Senate commerce committee, was not placated.

“You pretty much get what you want and stop what you want around here,” said Rockefeller, a West Virginia Democrat in his final months in office. He accused the rail industry of having undue influence with Washington regulators and lawmakers.

“You are doing a great job for your shareholders. What about these folks?” Rockefeller said, referring to officials from the farm, auto and chemical industries who also testified at the hearing.

Automakers are spending tens of millions of dollars a month to avoid snarls on the tracks for their cargoes, said Shane Karr of the Alliance of Automobile Manufacturers.

Meanwhile, the massive grain harvest could exceed permanent storage bins by about 694 million bushels this harvest season, or about 3.5 per cent of expected totals, said Arthur Neal, who analyzes market and transportation issues for the Department of Agriculture.

That glut could fill roughly 174,000 jumbo hopper rail cars with South Dakota, Indiana, Missouri and Illinois among the states most impacted, he said, adding that much of last year’s crop is still lying around.

“It is critical to move as much of the 2013 grain crop as quickly and efficiently as possible,” Neal said.

The grain glut is causing snarls along train lines controlled by BNSF and Canadian Pacific Railway and driving up other transportation costs.

Barge rates along the Mississippi and Illinois rivers, for instance, are about 50 percent higher than the five-year average.

Higher costs for agriculture deliveries could push some foreign buyers to turn away from United States producers, warned Senator Amy Klobuchar, a Minnesota Democrat.

“We have to find a way out of this,” she said.

Ed Hamberger, president of the Association of American Railroads, said operators aim to strike a balance between delivering good service and satisfying investors.

When Rockefeller accused the rail sector of profiteering, Hamberger said operators deliver a return on invested capital about half the average for Fortune 500 companies.

If the railroads were financially weaker it would be more difficult for them to draw investment used to improve service, he said, while acknowledging that service can be improved.

“For a not insignificant group of rail customers, rail service in recent months has not been of the quality they have come to expect,” Hamberger told the committee. “Rest assured, railroads are working tirelessly to remedy these challenges.”

— Patrick Rucker reports on U.S. energy policy for Reuters from Washington, D.C. Additional reporting for Reuters by Karl Plume in Chicago.

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In August, as drought seared the Midwest, the governors of several livestock-producing states including Georgia and New Mexico asked the U.S. Environmental Protection Agency (EPA) to suspend the ethanol mandate. They said it pushed up prices for feed grain and squeezed producers’ profits.

But the EPA decided the relief brought on by freezing the mandate would not be significant and would reduce corn prices only about one per cent.

"We recognize that this year’s drought has created hardship in some sectors of the economy, particularly for livestock producers," said Gina McCarthy, assistant administrator for the EPA’s Office of Air and Radiation.

"But our extensive analysis makes clear that… waiving the (Renewable Fuel Standard, or RFS) will have little, if any, impact."

The EPA determined the mandate did not cause severe economic harm, a requirement for waiving the measure.

Aimed at reducing U.S. reliance on foreign oil, the RFS requires 13.2 billion gallons of ethanol to be made from corn this year. About 40 per cent of the U.S. corn crop is used to make ethanol.

Many oil companies oppose the RFS, saying it adds costs to making gasoline.

Patrick Kelly, a senior policy adviser at industry group the American Petroleum Institute, said the EPA "applied an improper and unnecessary high bar, which makes it questionable if any waiver could ever be granted," and that the RFS had become "increasingly unrealistic and unworkable."

This was the second time that the EPA denied a waiver. In 2008, regulators rejected a Texas petition to halve the mandate temporarily.

Upholding the mandate could benefit ethanol producers such as Archer Daniels Midland and privately held POET.

Corn futures in Chicago were up 3-1/2 cents at $7.24-3/4 a bushel on Friday, reversing early losses after news the government would uphold the mandate, traders said.

— Patrick Rucker and Timothy Gardner cover the financial and energy sectors respectively for Reuters from Washington, D.C.

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