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TRANSPORTATION RESEARCH BOARD SPECIAL REPORT 324 Designing Safety Regulations for High-Hazard Industries Committee for a Study of Performance-Based Safety Regulation

Transportation Research Board Special Report 324 Subscriber Categories Administration and management; safety and human factors; policy; energy Transportation Research Board publications are available by ordering individual publications directly from the TRB Business Office, through the Internet at www. TRB.org or nationalacademies.org/trb, or by annual subscription through organi- zational or individual affiliation with TRB. Affiliates and library subscribers are eligible for substantial discounts. For further information, contact the Transporta- tion Research Board Business Office, 500 Fifth Street, NW, Washington, DC 20001 (telephone 202-334-3213; fax 202-334-2519; or e-mail TRBsales@nas.edu). Copyright 2018 by the National Academy of Sciences. All rights reserved. Printed in the United States of America This report was reviewed by a group other than the authors according to the procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the National Academy of Medicine. This study was sponsored by the Pipeline and Hazardous Materials Safety Admin- istration of the U.S. Department of Transportation and the National Academies of Sciences, Engineering, and Medicine’s Transportation Research Board and the Gulf Research Program. International Standard Book Number-13:  978-0-309-46606-6 International Standard Book Number-10:  0-309-46606-7 Digital Object Identifier:  https://doi.org/10.17226/24907 Library of Congress Control Number:  2017964429

The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, nongovernmental institution to advise the nation on issues related to science and ­ echnology. Members are t elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. C. D. Mote, Jr., is president. The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of ­ ciences to S advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The National Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.nationalacademies.org. The Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. The mission of the Transportation Research Board is to increase the benefits that transportation contributes to society by providing leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied activi- ties annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org.

Consensus Study Reports published by the National Academies of Sciences, Engi­eering, and Medicine document the evidence-based consensus on the n study’s statement of task by an authoring committee of experts. Reports typi- cally include findings, conclusions, and recommendations based on information gathered by the committee and the committee’s deliberations. Each report has been subjected to a rigorous and independent peer-review process and it represents the position of the National Academies on the statement of task. Proceedings published by the National Academies of Sciences, Engineering, and Medicine chronicle the presentations and discussions at a workshop, symposium, or other event convened by the National Academies. The statements and ­ pinions o contained in proceedings are those of the participants and are not endorsed by other participants, the planning committee, or the National Academies. For information about other products and activities of the National Academies, please visit www.nationalacademies.org/about/whatwedo.

COMMITTEE FOR A STUDY OF PERFORMANCE-BASED SAFETY REGULATION Detlof von Winterfeldt, University of Southern California, Los Angeles, Chair Kenneth E. Arnold (NAE), K. Arnold Consulting, Houston, Texas Cary Coglianese, University of Pennsylvania, Philadelphia Louis Anthony Cox, Jr. (NAE), Cox Associates, LLC, Denver, Colorado Robin L. Dillon-Merrill, Georgetown University, Washington, D.C. Lois N. Epstein, Wilderness Society, Anchorage, Alaska Orville D. Harris, O.B. Harris, LLC, Houston, Texas L. Robin Keller, University of California, Irvine Allison M. Macfarlane, The George Washington University, Washington, D.C. Rachel McCann, Health and Safety Executive, Liverpool, England Arthur D. Meyer, Enbridge Pipelines, Inc. (retired), Edmonton, Alberta, Canada Donald P. Moynihan, University of Wisconsin, Madison Susan S. Silbey, Massachusetts Institute of Technology, Cambridge James A. Watson IV, American Bureau of Shipping, Houston, Texas TRB Staff Thomas R. Menzies, Jr., Study Director Micah Himmel, Program Officer Claudia Sauls, Program Coordinator v

Preface Governments have long regulated the safety of industries engaged in haz- ardous activities. The ultimate purpose of this regulation is to ensure that the industries provide their vital goods and services with minimal harm to workers, the public, and the environment. A number of regulatory tools offering various advantages and disadvantages depending on circumstances can be used to achieve that purpose. While safety regulation cannot prevent all harmful incidents, regulators need to have confidence that the regula- tory tools they choose are well suited to the particular circumstances. They must also be able to explain their choices to policy makers and the public. For example, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) regulates the safety of hazardous cargoes, including those moved by pipeline. The network of pipelines in the United States is extensive and heavily used. Pipelines trans- port most of the country’s energy liquids and gases, including natural gas, to millions of homes and businesses. Because the safety of these systems is paramount, PHMSA’s regulations attract considerable attention from policy makers, including scrutiny when harmful failures occur. That scrutiny is most intense when failures have catastrophic consequences. Over the course of decades, legislation and rulemaking related to pipe- line safety in the United States have produced a mix of regulatory designs in the federal pipeline safety program. Among the regulations are techni- cal specifications for pipeline design, construction, maintenance, and op- erations that are highly detailed and narrowly targeted. Other regulations mandate certain capabilities and give pipeline operators discretion on how to meet them, such as in the training of their control room and inspection vii

viii PREFACE personnel. Even broader-based commands call on operators to establish comprehensive risk management programs, most notably to identify, as- sess, and prioritize the removal and repair of pipeline defects and other anomalies that risk failure. The varied collection of regulatory commands in the laws governing pipeline safety can create challenges for regulatory enforcement. The regula- tor may monitor a firm’s compliance with well-defined requirements by re- viewing documents and conducting field inspections. However, conformity with standards that are more generalized can require judgment on the part of the regulator’s enforcement personnel and trust in the operator’s ability and willingness to comply. PHMSA regulations that require integrity man- agement programs are referred to by the agency as “performance-based,” presumably because they give operators flexibility to customize their pro- grams to circumstances and to concentrate on enhancing the performance of their internal risk management actions, as opposed to “checklist” com- pliance with specifications having industrywide application. When pipeline failures occur, especially catastrophic ones, PHMSA must explain its reliance on the various types of regulations. PHMSA must also explain its regulatory approach when it issues new rules, before con- gressional committees, and in response to legal challenges and recommen- dations by the National Transportation Safety Board (NTSB). The rationale for giving pipeline operators flexibility in the means of compliance can be particularly difficult to explain and justify because of concerns that opera- tors might respond in perfunctory or uneven ways. Yet PHMSA’s rationale for its integrity management regulations is that pipeline systems are diverse in their design, configuration, operation, and environmental settings, and therefore the agency cannot be expected to identify and regulate all of the varied and context-specific sources of risk in the industry. The development of context-specific (or case-by-case) regulations, even if that were possible, would be extraordinarily costly. For these reasons, PHMSA requires opera- tors to assume direct responsibility for identifying and managing risks that would not otherwise be known to PHMSA. Safety regulators in other high-hazard industries, both in the United States and abroad, also use different combinations of regulatory designs. Like PHMSA, they need to determine whether their regulations are well suited to addressing relevant safety problems. Trends in incident reports may not inform that determination if the main concern is prevention of catastrophic incidents, which are inherently rare. To help in this regard, PHMSA sponsored this study to inform its choices of regulatory tools, as well as to help other safety regulators facing similar choices. Recognizing this broader interest in the design of safety regulations in the transportation sector and other high-hazard industries such as offshore oil and gas devel- opment and chemical manufacturing, the Transportation Research Board

PREFACE ix and the National Academies of Sciences, Engineering, and Medicine’s Gulf Research Program contributed additional funds to enable an expansion of the study scope to include case studies of industries in addition to pipelines. To conduct the study, the National Academies formed a committee with expertise in regulation, risk analysis, and the operations and man- agement of high-hazard industries. The committee was led by Detlof von Winterfeldt, the J.A. Tiberti Chair in Ethics and Decision Making at the University of Southern California. The contents and findings of the report represent the consensus effort of the 14 committee members, who served uncompensated in the public interest. They met five times over a 12-month period and held a subcommittee meeting in The Hague, Netherlands, to discuss regulation of the North Sea offshore oil and gas industry. The Hague meeting and other data-gathering sessions—all open to the public—were extensive. They included briefings by the sponsor; officials from other safety agencies of the federal government, state governments, and other countries; representatives from numerous high-hazard industries and labor unions; experts in regulatory studies; and current and former safety regulators. These sessions were invaluable to the committee and provided insight into regulatory practice as well as the shared need of safety regulators for greater conceptual clarity about the regulatory tools they possess. ACKNOWLEDGMENTS The committee thanks the many individuals and organizations who in- formed its work. The PHMSA liaison for the study was Robert W. Smith, who provided contract oversight and handled information requests from the committee. Both the immediate past and the current Associate Administrators for Pipe- line Safety at PHMSA, Jeffrey Weise and Alan Mayberry, briefed the com- mittee about PHMSA’s pipeline safety program. The study was conceived and funded with Weise’s leadership and support. The committee was briefed by the following representatives of U.S. federal and state safety regulatory agencies: Brian Salerno and Susan Dwarnick, Bureau of Safety and Environmental Enforcement; William Perry and Thomas Golassi, Occupational Safety and Health Administration; Donald Arendt, Federal Aviation Administration; Timothy Brown, U.S. Coast Guard; Grady Cothen (retired), Federal Railroad Administration; and Steven Allen, Indiana Utility Regulatory Commission. In addition, the committee was briefed by Neil Eisner, American University (retired, Office of the General Counsel of the U.S. Department of Transportation); Dominic Mancini, Office of Information and Regulatory Affairs (OIRA)

x PREFACE of the White House Office of Management and Budget; and former OIRA official Donald Arbuckle, now at The University of Texas. The committee held discussions with the following representatives of safety regulatory authorities outside the United States: Peter Watson, National Energy Board of Canada; Magne Ognedal (retired) and Paul Bang, Petroleum Safety Authority of Norway; Paul Bradley, Health and Safety Executive of the United Kingdom; Hans Erik Christensen, Danish Working Environment Authority; and Roel van de Lint and Vincent Claessens, State Supervision of Mines of the Netherlands. The committee was briefed by the following representatives of high- hazard industries: Ronald Bradley, PECO, an Exelon Company; James Crowley, Easton Utilities Commission; Robin Rorick and David Miller, American Petroleum Institute; Terrance Kutryk, Alliance Pipeline, Limited; Christopher Bloomer, Canadian Energy Pipeline Association; Peter Lodal, Eastman Chemical Company; Trish Sentance, Oil and Gas UK; Esben Mortensen, Oil and Gas Denmark; Gert-Jan Windhorst, Netherlands Oil and Gas Exploration and Production Association; Christopher Hawkes, International Association of Oil and Gas Producers; Ida Maria Winther, Maersk Drilling; and Jens Hoffmark, International Association of Drilling Contractors. The committee invited other individuals to discuss matters relevant to the study. The Honorable Christopher Hart, NTSB, discussed NTSB’s recommendations pertaining to the design of transportation safety regula- tions; Richard Kowalewski, The George Washington University, presented findings from A Report to the Secretary of Transportation: Pipeline In- tegrity Management; Jake Molloy, National Union of Rail, Maritime, and Transport Workers, discussed the experience of offshore workers with the United Kingdom’s safety regulation; Michael Wright, United Steelwork- ers, discussed the experience of U.S. petrochemical workers with process safety programs; Jonathan Wills, Shetland Islands Council, presented his views of offshore safety regulation in the North Sea region; Peter Bjerager, Americas DNV Oil and Gas, explained the role of third-party auditors in compliance assurance; Lori Snyder Bennear, Duke University, discussed her research on the use of regulatory designs in the offshore sector; Elmer “Bud” Danenberger described offshore regulation outside the United States; and Taf Powell discussed the European Commission’s Offshore Directive. The committee is grateful to the National Academies’ Gulf Research Program for providing funds for a subcommittee meeting in The Hague, Netherlands, where many of the international briefings and discussions took place. The information and insights from the workshop were crucial to the report’s case study of offshore oil and gas safety regulation in Norway and the United Kingdom. Special thanks go to Taf Powell for providing

PREFACE xi extensive assistance with the planning and structuring of the subcommittee meeting. This report was reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise. The purpose of this indepen- dent review is to provide candid and critical comments that will assist the National Academies of Sciences, Engineering, and Medicine in making each published report as sound as possible and to ensure that it meets the institutional standards for quality, objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We thank the following individuals for their review of this report: Stephen Allen, Indiana Utility Regulatory Commission, Indianapolis; Lori Snyder Bennear, Duke University, Durham, North Carolina; James Dyer, The University of Texas at Austin; Neil Eisner, American University, Wash- ington, D.C.; Roger Kasperson, Clark University (emeritus), Washington, D.C.; Gary Klein, Wiss, Janney, Elstner Associates, Inc., Northbrook, Illinois; William Klimack, Chevron Corporation, Houston, Texas; Karlene Roberts, University of California, Berkeley; Brian Salerno, Silver Spring, Maryland; John Samuels, Revenue Variable Engineering, LLC, Palm Beach Gardens, Florida; and Trish Sentance, Oil and Gas UK, Aberdeen, Scotland. Although the reviewers listed above provided many constructive com- ments and suggestions, they were not asked to endorse the conclusions or recommendations of this report nor did they see the final draft before its release. The review of this report was overseen by the review coordina- tor, Susan Hanson, Clark University (emerita), and the review monitor, Ross Corotis, University of Colorado Boulder. They were responsible for making certain that an independent examination of this report was car- ried out in accordance with the standards of the National Academies and that all review comments were carefully considered. Responsibility for the final content rests entirely with the authoring committee and the National Academies. Thomas R. Menzies, Jr., managed the study and drafted much of the report under the direction and guidance of the committee. Micah Himmel assisted with preparations, and Claudia Sauls provided extensive support to the committee in arranging the many meetings and managing documents. Karen Febey managed the report review. The committee acknowledges Norman Solomon, who edited the report.

Contents Summary 1 1 Introduction 5 Challenge of Regulating Safety in High-Hazard Industries 5 Study Charge 12 Study Approach 15 Report Organization 19 References 20 2 Conceptual Framework for Regulatory Design 22 Definitions 22 Conceptual Framework 24 Nomenclature Mapped to Common Regulatory Labels 29 Advantages and Disadvantages Commonly Associated with Regulation Design Types 30 References 32 3  Applications of the Conceptual Framework: Case Studies from the Pipeline and Offshore Oil and Gas Sectors 34 Pipeline Safety Regulation in the United States and Canada 36 Offshore Safety Regulation in the United States and the North Sea Region 58 References 87 xiii

xiv CONTENTS 4 Considerations for Choosing a Regulatory Design 89 Regulation as Problem Solving 90 Issues in Regulatory Design, Implementation, and Evaluation 100 Other Factors Affecting Regulatory Choice 114 Assessment 119 References 121 5 Designing Macro-Means Safety Regulation in High-Hazard Industries 124 Recap of Reasoning and Findings of Report 124 Rationale for Using Macro-Means Regulation in High-Hazard Industries 126 Use of Macro-Means Regulation in High-Hazard Industries with Varied Characteristics 130 Use of Macro-Means Regulation in High-Hazard Industries by Regulators with Varied Capabilities 133 Other Macro-Means Issues Deserving Attention 137 References 139 6 Summary Assessment 140 Study Committee Biographical Information 143

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TRB Special Report 324: Designing Safety Regulations for High-Hazard Industries, examines key factors relevant to government safety regulators when choosing among regulatory design types, particularly for preventing low-frequency, high consequence events. In such contexts, safety regulations are often scrutinized after an incident, but their effectiveness can be inherently difficult to assess when their main purpose is to reduce catastrophic failures that are rare to begin with. Nevertheless, regulators of high-hazard industries must have reasoned basis for making their regulatory design choices.

Asked to compare the advantages and disadvantages of so-called “prescriptive” and “performance-based” regulatory designs, the study committee explains how these labels are often used in an inconsistent and misleading manner that can obfuscate regulatory choices and hinder the ability of regulators to justify their choices. The report focuses instead on whether a regulation requires the use of a means or the attainment of some ends—and whether it targets individual components of a larger problem (micro-level) or directs attention to that larger problem itself (macro-level). On the basis of these salient features of any regulation, four main types of regulatory design are identified, and the rationale for and challenges associated with each are examined under different high-hazard applications.

Informed by academic research and by insights from case studies of the regulatory regimes of four countries governing two high-hazard industries, the report concludes that too much emphasis is placed on simplistic lists of generic advantages and disadvantages of regulatory design types. The report explains how a safety regulator will want to choose a regulatory design, or combination of designs, suited to the nature of the problem, characteristics of the regulated industry, and the regulator’s own capacity to promote and enforce compliance. This explanation, along with the regulatory design concepts offered in this report, is intended to help regulators of high-hazard industries make better informed and articulated regulatory design choices.

Accompanying the report, a two-page summary provides a condensed version of the findings from this report.

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