VII. Regulatory Impact Analysis
| Record Type:
||Control of Hazardous Energy Sources (Lockout/Tagout)
||Section 7 - VII. Regulatory Impact Analysis
Executive Order 12291 (46 FR 13193, February 17, 1981) requires that a regulatory analysis be conducted for any rule potentially having major economic consequences on the national economy, geographical regions, individual industries, or levels of government. Consistent with these requirements, OSHA has prepared a Regulatory Impact Analysis (RIA) for this Final Rule. The analysis includes: A profile of the potentially affected firms and employees; a description of regulatory and nonregulatory alternatives; an analysis of the technological feasibility of the rule; and a study of the potential social benefits, economic costs, and environmental impacts that may result from full compliance with the rule.
The complete analysis, as summarized in this section, is based on data and information provided by the Eastern Research Group (ERG) in a study entitled, "Industry Profile Study of a Standard for Control of Hazardous Energy Sources Including Lockout/Tagout Procedures" [Ex. 15]. Additional information was obtained from comments submitted to OSHA in response to the proposed rule and a supplemental ERG report [Ex. 21].
The Secretary has determined that this action is a "major action" as defined by section 3(b) of Executive Order 12291 as it will have an annual effect on the economy of $100 million or more. The Regulatory Impact Analysis is available for inspection and copying in the rulemaking docket.
The Final Rule will affect most employment covered by OSHA under Part 1910 except: (1) Those activities that are specifically excluded from coverage such as certain work on plug and cord type electrical equipment; and (2) employment for which OSHA has or is in the process of providing separate coverage under a different Subpart or Part, such as the oil and gas field services industry. OSHA has estimated that the rule will affect activities in some 1.7 million establishments employing approximately 39 million workers.
To analyze the differing effects of the rule, OSHA has divided the affected industries into a high impact group, a low-impact group, and a zero or negligible-impact group. The high-impact group consists of all manufacturing industries. In 1984, approximately 20 million workers were employed in 340,451 high-impact establishments.
Firms classified as low-impact include those in transportation; utilities; wholesale trade; retail food stores; and several service industries, including personal services, business services. automotive repair, miscellaneous repair, and amusement services. OSHA has estimated that approximately 19 million workers were employed in 1.4 million low-impact establishments in 1984.
The negligible-impact group consists of industries that ERG determined had little potential for a lockout or tagout related accident. Retail trade, finance insurance, real estate, service, and public administration firms not classified in the high or low-impact sectors were included in this group.
The Agency's analysis focuses on the potential regulatory effects to high- and low-impact firms.
Population at Risk
As noted, some 39 million workers are employed in industries that may be affected by the Final Rule. All such workers have the potential for being injured due to inadequate or nonexistent use of lockout or tagout. In estimating the number of workers at risk from exposure to hazardous energy, OSHA classified "at-risk" occupations in the Final Rule as those being held by individuals who would actually perform lockout or tagout activities. Although this approach tends to underestimate the number of workers who could benefit from promulgation of a lockout or tagout rule, it does provide a good measure of the number of workers who will have to alter their work patterns to comply with the rule. Thus, it is an appropriate method for estimating the costs of the rule. Based on the ERG study [Ex. 15, p. 3-35], OSHA has determined that two million workers in high-impact industries, and one million workers in low-impact industries, are employed in occupations where the unexpected energization or startup of machines or equipment or release of stored energy could cause injury to employees. The risk appears to be the greatest for those workers employed as craft workers, machine operators, and laborers. Certain types of machinery, such as packaging and wrapping equipment, along with printing presses and conveyors, are associated with a high proportion of the accidents.
Significance of Risk
The installation, assembly, service, repair, maintenance, change over, and disassembly of machines, equipment, and systems are activities integral to most industrial processes. During these activities, however, accidents often result from the inadvertent energization or movement of machinery or equipment.
The ERG study [Ex. 15, p. 6-27, 6-48) estimated that two percent of all workplace injuries, and 7.1 percent of all fatal occupational accidents, occur as a result of inadequate or nonexistent lockout or tagout procedures in industries regulated under this Final Rule. Based on these percentages, the Agency has estimated that in 1984 there were 144 fatalities, 33,432 lost workday injuries, and 37,561 non-lost workday injuries that occurred due to inadequate lockout or tagout procedures in the affected industries. Assuming that these types of accidents grow proportionately with the average level of employment, approximately 1,530 fatalities, 352,965 lost workday injuries, and 396,560 non-lost workday injuries would occur during the next 10 years in the absence of a lockout or tagout standard.
The accidents commonly resulting from inadequate or nonexistent lockout or tagout activities tend to be significantly more severe than the average occupational injury. Injuries typically include fractures, lacerations, contusions, amputations, and puncture wounds. The ERG study [Ex. 15, p. 6-52] estimated that such injuries cause workers to lose an average of 24 workdays. By way of comparison, the 1981 Bureau of Labor Statistics' Occupational Injuries and Illnesses Study [Ex. 18] reports that the average lost time occupational injury involves 16 lost workdays.
Based upon the aforementioned evidence, OSHA has determined that the failure to control hazardous energy results in a significant risk to employees. Since the private market fails to provide an adequate level of safety for workers servicing and maintaining equipment, the Agency has examined various regulatory and nonregulatory alternatives, including tort litigation, distribution of information, workers' compensation, and industry self regulation. The Agency has concluded that the standard would reduce risk in an optimal manner.
The Final Rule is written in performance-based language that permits firms to develop lockout or tagout procedures that are most appropriate for their specific machines and equipment. Based on data gathered during ERG site visits, OSHA has determined that some firms of all sizes and types are already in full compliance with the Final Rule. As this rule would not require the development of new technologies or significant equipment modifications, OSHA has determined that all provisions of the standard are technologically feasible.
Costs of Compliance with the Rule
OSHA has estimated the cost of full compliance with the standard based on the most cost effective methods of implementing the Final Rule. The Agency estimates that 72.5 percent of all energy isolating devices are lockable (90 percent of the electrical disconnects and 66.7 percent of the valves) and will be locked out under the Final Rule, while the remaining 27.5 percent are not lockable and will be tagged out. Thus, the Agency has concluded that promulgation of the rule will cost 631,000 establishments a total of $214.3 million during the first year of implementation and $135.4 million in subsequent years.
The cost of complying with the standard can be briefly summarized by category. For locks, tags, and other hardware, the first-year cost is estimated to be $18.5 million, and the annual recurring costs amount to $8.9 million. for voluntary equipment modification to facilitate lockout or tagout, the first-year cost is estimated at $27.0 million, with no annual recurring costs. In terms of work practice modifications, the first-year cost and the annual recurring costs are $102.7 million each. For planning and implementing lockout or tagout procedures, the first year cost is calculated at $35.2 million, and the annual recurring costs are estimated at $21.0 million. For employee training, the first-year cost is $31.0 million, and the annual recurring costs are $3.6 million.
OSHA also has estimated the average costs per establishment for firms not currently using adequate lockout or tagout procedures. First-year compliance costs for establishments in manufacturing industries, which are classified as high-impact firms, would range from $120 per firm for very small establishments (those having less than 20 employees) to $28,172 for large establishments (those having more than 250 employees). First-year costs of the standard by SIC code for the high and low-impact industries are summarized in Table XXIV.
TABLE XXIV. FIRST YEAR COST OF THE STANDARD FOR THE CONTROL OF HAZARDOUS ENERGY SOURCES BY SIC [millions $]
*Total may not add due to rounding.
||High impact industries
||Food and kindred products
||Textile mill products
||Apparel and other finished products
||Lumber and wood products, except furniture
||Furniture and fixtures
||Paper and allied products
||Printing, publishing, and allied industries
||Chemicals and allied products
||Petroleum, refining, and related industries
||Rubber and miscellaneous plastics products
||Leather and leather products
||Stone, clay, glass, and concrete products
||Primary metal industries
||Fabricated metal products, except machinery and transportation equipment
||Machinery, except electrical
||Electrical and electronic machinery, equipment, and supplies
||Measuring, analyzing, and controlling instruments
||Miscellaneous manufacturing industries
||Low impact industries
|Total cost to high and low impact industries *214.3
Source, OSHA, ORA, April, 1989.
Benefits of the Final Rule
OSHA has estimated the total number of accidents that the Final Rule would have prevented in 1984, assuming full compliance by all affected firms and workers. As a conservative estimate, the Agency assumed that only 85 percent of those accidents identified as caused by inadequate or nonexistent lockout or tagout procedures would actually be prevented under this rule. It was assumed that 15 percent of the noted accidents may still occur even if both employees and employers are complying fully with the rule (e.g., a block used to hold the weight of a suspended machine component may fail). Based on the above assumptions, OSHA has estimated that the Final Rule would have prevented approximately 122 fatalities, 28,416 lost workday injuries, and 31,926 non-lost workday injuries in 1984.
OSHA has calculated the cost per fatality avoided by the standard as one measure of its efficacy. Overall, for both low-impact and high-impact industries the compliance costs of the standard are estimated to amount to about $1.2 million per fatality avoided. If compliance costs are further adjusted to reflect the additional economic benefits expected to accrue to employers (e.g., less lost production time, less administrative preparing insurance claims and accident reports, and less inefficiency related to replacing injured workers), the cost per fatality avoided falls to $0.19 million. However, this calculation only includes fatalities, and does not take into account the costs or benefits for the avoidance of employee injuries. If injuries were included in the calculations, cost per injury prevented would be extremely low. Thus, the Agency has concluded that the lockout or tagout rule will reduce the number of occupational fatalities and injuries in a cost-effective manner.
OSHA has determined that full compliance with the standard will have a minor negative impact on the profits of the affected firms because, on average, compliance costs will equal no more than 0.05 percent of operating costs and 2.2 percent of net income for any size establishment. Neither the gross national product [GNP], the level of international trade, the price of consumer goods, nor the level of employment will be significantly affected. Based on these estimates, the Agency has concluded that the economic effects of the rule will be negligible, and thus neither the stability nor the profitability of any particular industry or size firm will be at issue as a consequence of the promulgation of the final standard.