The recent controversy over Keystone XL pipeline project and the Exxon Mobil pipeline spill in Montana in July of 2011 have highlighted concerns about the environmental impacts of the U.S. pipeline network. In late 2011, President Obama signed the Pipeline Safety, Regulatory Certainty, and Job Creation Act which significantly increases the fines associated with violations of pipeline regulations and increases funding for federal inspections of pipelines with a goal of improving the safety of pipelines in the U.S.  While there have been numerous studies of the effectiveness of federal enforcement in improving compliance with other environmental regulations, to my knowledge no one has yet analyzed the effect of federal enforcement efforts on pipeline compliance.  The goal of this paper is to provide the first empirical analysis of the environmental performance of pipelines and to determine the factors that have the largest effect on compliance. The results of this analysis should provide insight into whether the changes mandated under the Pipeline Safety, Regulatory Certainty, and Job Creation Act are likely to achieve their goal.

Pipelines that transmit natural and other gas or hazardous liquids are regulated by the Pipeline and Hazardous Safety Materials Administration (PHMSA), as division of the Department of Transportation. PHMSA sets minimum federal standards with which all pipeline operators must comply. As is true with many other environmental regulations, states can pass supplementary regulations. PHMSA regulations are enforced by both federal and state regulators. If a pipeline crosses state borders, enforcement generally falls to the federal government, while most states inspect intrastate lines.  In theory, standard inspections are conducted every couple of years on all pipelines and more often on pipelines with higher potential risks. To complement formal enforcement, pipelines must also self-inspect and report any violations discovered during the course of required inspections to PHMSA.

While pipeline are fixed structures, they are not constrained within a particular geographic area like most entities subject to environmental regulation.  Thus this analysis focuses on the aggregate compliance behavior and environmental performance of individual pipeline operators rather than the compliance status of a particular section of a pipeline.  This analysis is most analogous to firm-level studies of compliance and environmental performance such as Khanna and Anton (2002) and Thornton, Gunningham, and Kagan (2005). The universe for the analysis consists of all active pipeline operators in the U.S. with more than 100 miles of regulated pipeline, approximately 340 operators. The data used in the analysis include information on federal enforcement efforts such as inspections, enforcement activities, and penalties as well as data on operators’ environmental performance as measured by injuries, fatalities, property damage, and barrels of product lost through pipeline “incidents” for the 2006-2011 time period. The analysis itself is a relatively straightforward estimation of a random effects panel model with various measures of compliance environmental performance serving as the dependent variable and with lagged federal enforcement variables as the primary explanatory variables of interest.