Research / BFI Working PaperSep 02, 2017

Crude by Rail, Option Value, and Pipeline Investment

The U.S. shale boom has profoundly increased crude oil movements by both pipelines–the traditional mode of transportation–and railroads. This paper develops a model of how pipeline investment and railroad use are determined in equilibrium, emphasizing how railroads’ flexibility allows them to compete with pipelines. We show that policies that address crude-by-rail’s environmental externalities by increasing its costs should lead to large increases in pipeline investment and substitution of oil flows from rail to pipe. Similarly, we find that policies enjoining pipeline construction would cause 80-90% of the displaced oil to flow by rail instead.

Additional Materials

More Research From These Scholars

BFI Working Paper Jan 1, 2016

Will We Ever Stop Using Fossil Fuels?

Thomas Covert, Michael Greenstone, Christopher R. Knittel
Topics:  Energy & Environment, Financial Markets, Monetary Policy, Tax & Budget, Health care
BFI Working Paper May 18, 2020

The Economics of Time-Limited Development Options: The Case of Oil and Gas Leases

Evan M. Herrnstadt, Ryan Kellogg, Eric Lewis
Topics:  Energy & Environment
BFI Working Paper Jul 10, 2023

Think Globally, Act Globally: Opportunities to Mitigate Greenhouse Gas Emissions in Low- and Middle-Income Countries

Rachel Glennerster, Seema Jayachandran
Topics:  Development Economics, Energy & Environment