Opinion

Stealth Regulations Are Taxing Low-Emissions Transportation

By Oliver McPherson-Smith & Steve Pociask
October 9, 2019 at 5:00 am ET

Protecting the environment and consumer prices are two issues that most Americans are concerned about. So it’s not surprising that federal bureaucrats have been purposefully quiet about proposals to impose sweeping new regulations that would hamper the country’s freight railroads — the most environmentally sound way to move freight over land — and do so at consumer expense.

Rather than resurrecting outdated policies that could erase billions of dollars of economic benefit that freight railroads provide to consumers, regulators should focus on policies that enable private investment in the American rail industry — a requisite for the safe movement of goods that consumers depend on.

Moving goods and materials across the vast American interior is a central challenge to the U.S. economy. While trucks and trailers are the most popular method of transport, rail transportation is four times more energy efficient.

Per industry data, railroads move a ton of goods some 470 miles on one gallon of fuel. While transportation is a major contributor to U.S. greenhouse gas emissions, railroads account for a mere 2 percent of those outputs, compared to 82 percent for cars and trucks.

Despite rail’s growing potential to provide cost-competitive and low-emissions freight transport, federal regulators on the Surface Transportation Board, an independent regulatory body that generally handles rate disputes, are proposing new rules that would allow bureaucrats to set railroad transportation prices for deals worth less than $4 million.

The STB is also considering a new system of rate caps, a scheme whereby regulators determine how much money a railroad “should” earn in a year, and when that threshold is met, would begin imposing across-the-board, utility-style rate regulation for rail customers.

As a recent analysis by the National Taxpayers Union argued: “this would result in a de facto price control set by a regulator over a private market business. Businesses should be able to charge prices based on economic factors through supply and demand.”

In another possible blow to the industry, bureaucrats want the adjudication process to rely on “principle-based, non-prescriptive criteria.” But these are vague terms that offer little certainty to businesses and would give federal officials a mandate to set prices on a capricious whim — with costly ramifications for consumers and the environment.

These rules would together incentivize and legitimize rent seeking, and thus a slew of applications to have prices set below competitive market rates, making low-emissions transportation unprofitable. Measures that make rail less competitive would divert freight to the roads, which stands in contrast to policymakers’ stated goals on improving infrastructure and the environment. Ironically, while the rails are privately owned and built, the nation’s roads are publicly owned, which means that more wear and tear on roads will lead to more pollution and put a heavier cost burden on taxpayers.

These proposals risk undoing decades of progress marked by light-touch regulation. A study by the American Consumer Institute highlights that increasing the scope of the STB’s powers could roll back the $10 billion worth of annual economic benefits that the rail industry provides to consumers.

Increasing bureaucratic interference in the freight railroads has little upside but tremendous downside for the economy and the environment. Allowing the STB to set prices would be a return to overregulation seen last in the 1970s and a direct attack on an industry that supports 1.1 million jobs across the country and just about every economic sector.

The STB’s proposed rules set out to punish a competitive transportation industry that produces significantly less emissions than its market-leading competitors. American consumers want clean transportation and lower prices — increasing the market-distorting powers of federal regulators would do exactly the opposite.

 

Oliver McPherson-Smith is an economic writer and Steve Pociask is president for the American Consumer Institute, a non-profit educational and research organization.

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