Regulations (Preambles to Final Rules) - Table of Contents Regulations (Preambles to Final Rules) - Table of Contents
• Record Type: Process Safety Management of Highly Hazardous Chemicals;Explosives and Blasting Agents
• Section: 5
• Title: Section 5 - V. Summary of Regulatory Impact and Regulatory Flexibility Analysis, International Trade Impact Analysis, and Environmental Impact Assessment

V. Summary of Regulatory Impact and Regulatory Flexibility Analysis, International Trade Impact Analysis, and Environmental Impact Assessment

Introduction.

OSHA has created a new standard within Subpart H, Hazardous Materials, to deal with the risks involved in the storage, handling and processing of highly hazardous materials. The standard -- referred to as process safety management, or PSM -- emphasizes the application of management controls, rather than specific engineering guidelines, when addressing the risks associated with handling or working near hazardous chemicals. Implementation of process safety management programs and procedures will enable affected establishments to prevent the occurrence, and minimize the consequences, of significant releases of toxic substances, as well as fires, explosions and other types of catastrophic accidents.

The benefits of implementing PSM include the prevention of accidental fatalities, injuries and illnesses, and the avoidance of physical property damage. Furthermore, the standard will contribute to enhanced productivity due to fewer process disruptions and accidental shutdowns and decreased labor turnover as workers perceive a safer work environment; lead to more efficient utilization of space, labor and equipment in the wake of programmatic plant reviews; promote an integrated approach to process design, construction, operation, and maintenance, with process safety as the central focus of concern; reduce loss of raw materials and inadvertent waste generation; and increase product quality. Savings in these areas are expected to offset direct costs of compliance. OSHA also anticipates significant improvements in ergonomic and other chronic health and safety problems -- including low-level exposure to toxic substances -- through compliance with the PSM standard.

In response to recent catastrophic accidents in the petrochemical industry, OSHA in 1990 initiated the Special Emphasis Program in Petrochemical Industries (PETROSEP), whose purpose is to determine whether management systems governing safety and health procedures for maintenance activities, contractor activities, and operations are in place to control risk. The largest firms in SIC 2821, Plastic Materials and Resins, SIC 2869, Industrial Organic Chemicals, Not Elsewhere Classified, and SIC 2911, Petroleum Refining, are the subject of the program. The PETROSEP program focuses the attention of plant managers and contractors on the need to integrate the PSM philosophy into the safety culture of the worksite.

Executive Order 12291 [46 FR 13197] requires that a regulatory impact analysis be prepared for any proposed regulation that meets the criteria for a "major rule"; that is, one that would result in an annual impact on the economy of $100 million or more, have a major increase in cost or prices for consumers, individual industries, federal, state or local government agencies, or geographic regions, or have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign- based enterprises in domestic or export markets. In addition, the Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires analysis of whether a regulation will have a significant economic impact on a substantial number of small entities.

Consistent with these requirements, OSHA has prepared this Regulatory Impact and Regulatory Flexibility Analysis for 1910.119, Process Safety Management of Highly Hazardous Chemicals. The Regulatory Impact Analysis is a critical part of OSHA reasoning both on issues arising under the OSH Act and under the Executive Order. OSHA has explicitly relied on the RIA to support this final Process Safety Management rule. As a result of this analysis OSHA has determined that promulgation of 1910.119 will constitute a major rule.

Affected Industries and Current Compliance

Based on a report prepared by Kearney/Centaur [Ex. 5] and a follow-up review of national chemical databases, OSHA has determined that 24,939 establishments in 127 industry subgroups will be affected by the PSM standard. The population at risk is an estimated 3.0 million workers (2.37 million plant employees and 653,000 contract employees) and is found throughout manufacturing, particularly in Standard Industrial Classification (SIC) code 28, Chemicals and Allied Products, SIC 37, Transportation Equipment, and SIC 34, Fabricated Metal Products, Except Machinery and Transportation Equipment. In addition to manufacturing, natural gas liquids (SIC 1321), farm product warehousing (SIC 4221), electric, gas, and sanitary services (SIC 49) and wholesale trade (SICs 50 and 51) contain workers at risk. The extent of the impact will vary by industry depending on current practice, the number of processes, and the quantities of highly hazardous materials on site.

OSHA excluded from this final impact analysis establishments in California, Delaware and New Jersey, where process safety management statutes have already been enacted. In these three states the compliance burden is unaffected by the federal rule.

OSHA estimated current practices with the provisions of the process safety management rule using OSHA survey data, survey data compiled by a major chemical engineering magazine, and data in the rulemaking record. For all industries affected by the proposed rule, none are currently in full compliance, although compliance is greater than 75 percent among some establishments for some specific provisions. Generally, larger firms have a higher current compliance rate than smaller firms, but for many industries the compliance-rate differences by establishment size are not substantial.

Nonregulatory Environment

The primary objective of OSHA's process safety management standard is to reduce the number of employee fatalities and injuries associated with catastrophic releases of hazardous substances. OSHA believes that the PSM standard will eliminate to a considerable degree the risks which workers experience in the establishments falling within the scope of the rule.

The Agency examined the nonregulatory approaches for promoting the implementation of safety management programs, including (1) economic forces generated by the private market system, (2) incentives created by workers' compensation programs or the threat of private suits, and (3) related activities of private agencies. Following this review, OSHA determined that the need for government regulation arises from the significant risk of job-related injury or death caused by inadequate practices for preventing catastrophic accidents which currently exist in the industry. Private markets fail to provide enough safety and health resources due to the lack of information on risk, immobility of labor, and externalization of part of the social costs of worker injuries and deaths. Workers' compensation systems do not offer an adequate remedy because premiums do not reflect specific workplace risk and liability claims are restricted by statutes preventing employees from suing their employers. While certain voluntary standards exist, their scope and approach fail to provide adequate protection for all workers. Thus, OSHA has determined that a federal standard is necessary.

Technological Feasibility and Costs of Compliance

OSHA reviewed the process safety management practices currently in place across industry as well as the recommended practices of industry trade associations and standards-setting organizations. On the basis of substantial current compliance found by OSHA and its consultants, widespread familiarity with the concepts and procedures of PSM, and the availability of technical consultation within and outside the affected sectors, OSHA has determined that the final rule for managing process hazards is technologically feasible.

OSHA estimated the costs of compliance with the PSM standard using information from the rulemaking record and from a report prepared under contract by Kearney/Centaur in 1990 [Ex. 5]. Most of the activities required by the PSM standard involve personnel time to develop programs and procedures, train employees, and carry out inspection activities. Capital costs will be incurred by firms when process hazard analyses and pre-startup safety reviews uncover the need to redesign processes and/or change equipment in order to reduce risks.

Consistent with the implementation schedule for completing initial process hazard analyses under Paragraph (e) of the standard, OSHA estimated compliance costs for two five-year periods. OSHA estimates that $888.7 million in direct annualized costs will be required to comply with the standard during each of the first five years following implementation of the rule. Of this annual cost, $470.8 million (53 percent) are attributed to Paragraph (e), Process Hazard Analysis, and $179.1 million (20 percent) to Paragraph (l), Management of Change. Annualized compliance costs during Years 6-10 will be $405.8 million. The decline in costs is largely related to the completion of process hazard analyses for existing operations.

Implementation of process safety management should generate cost savings in the forms of improved worker productivity, reduced incidence of property damage, diminished probability of lost production, and reduced employee turnover. Based upon an analysis by Kearney/Centaur, OSHA estimates that the value of annual PSM-related cost savings will be $719.9 million in Years 1-5 and $1.44 billion in Years 6-10. Subtracting the value of the cost savings from the annualized direct costs gives adjusted compliance costs of $168.8 million in Years 1-5. Cost savings are expected to exceed direct costs for most industry groups in Years 6-10. OSHA believes the true economic cost of the standard is best reflected by the adjusted costs. Furthermore, the estimate may understate the true cost savings, in that insurance, administrative, and societal cost savings associated with accident prevention are not included in the assessment.

Benefits

OSHA anticipates that full compliance with the PSM standard will lead to fewer catastrophic fires, explosions, releases of hazardous substances and other types of serious accidents. It is expected that many minor incidents will be prevented as well. Using data from the OSHA Integrated Management Information System database and applying an adjustment based upon the analysis of Charles River Associates [Ex. 10] and Kearney/Centaur [Ex. 5], OSHA estimated the baseline number of fatalities and injuries/illnesses linked to the PSM standard for the period 1983-90. For the eight-year period, an average of 330 fatalities and 1,918 injuries/illnesses per year were associated with major accidents involving hazardous materials (these totals exclude fatalities and injuries in California, New Jersey and Delaware). Using an average risk-reduction estimate of 40 percent for Years 1-5 implementation phase, OSHA estimates that 132 fatalities and 767 catastrophic injuries/illnesses (including 250 lost-workday injuries) will be avoided annually through compliance with the standard. In Years 6-10, a risk reduction of 80 percent is projected, with 264 fatalities and 1,534 injuries/illnesses (including 500 catastrophic lost-workday injuries) avoided, annually.

In addition to the health and safety benefits from preventing catastrophic incidents, reductions in injuries and illnesses related to minor process disruptions are anticipated, as well as reductions in the long-run risks posed by occasional releases of toxic vapors and gases and by the physical hazards of poor process design.

Economic Impact and Regulatory Flexibility Analysis

OSHA assessed the potential economic impact of the PSM standard separately on large and small establishments and has determined that none of the major industry groups would experience a significant economic burden as a result of the standard. If affected large establishments added the entire cost of compliance to the price of their final good, OSHA estimates that the average price increase would not exceed 0.07 percent during the ten-year period of analysis, based on the ratio of gross compliance costs to average establishment revenue. The maximum price increase in any major industry sector would be 0.7 percent. On the other hand, if all direct compliance costs were absorbed internally (and not passed forward to final customers), OSHA estimates that the average reduction in profits among large firms (20 or more employees) would approximate 1.2 percent.

While a few industry groups might experience profit reductions above 5 percent under the no-cost-pass-through scenario, the large-firm impact on the majority of affected major industry groups would be less than 3 percent of profit.

As required by the Regulatory Flexibility Act of 1980, OSHA assessed the economic burden faced by small establishments. For Years 1 through 5, the average ratio of direct cost to revenue for firms with fewer than twenty employees would be 0.23 percent. If small firms were to absorb the direct cost of regulation in full, profit reductions would average 3.4 percent for the first five years of implementation. Since profit impacts of less than 6 percent would be felt by the majority of small establishments under this scenario (zero cost offsets), OSHA has determined that the standard is economically feasible for small firms.

International Trade

OSHA is aware that the European and East Asian economic communities are introducing the concept of process safety management among their member countries. In time, European and Asian firms adopting PSM programs will experience the range of implementation costs estimated in this RIA for American firms. OSHA anticipates that as PSM becomes widespread throughout American industry, the productivity benefits and other cost-savings resulting from the rule could improve the competitiveness of American businesses.

During the implementation schedule, the standard is not likely to have a significant adverse effect on international trade because of the small magnitude of any price increase that would be required for passing forward compliance costs. As indicated above, the maximum price increases generated from the standard would be less than 0.3 percent for the majority of affected establishments. Thus, no measurable impact on foreign trade is expected.

Environmental Assessment

The PSM standard has been reviewed in accordance with the requirements of the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq.), the regulations of the Council on Environmental Quality (CEQ) (40 CFR Part 1500), and DOL NEPA Procedures (29 CFR Part 11). The provisions of the standard focus on the reduction and avoidance of incidents involving toxic releases, fires and explosions. Consequently, no major negative impact is foreseen on air, water or soil quality, plant or animal life, the use of land or other aspects of the environment. OSHA believes that compliance with the standard will result in positive environmental effects in the form of fewer releases of toxic liquids, solids and gases into the air, soil and water.

[57 FR 6356, Feb. 24, 1992; 57 FR 7847, March 4, 1992]

Regulations (Preambles to Final Rules) - Table of Contents Regulations (Preambles to Final Rules) - Table of Contents