PEP Review 2008-3
Chemical Plant Security Regulations and Associated Costs
Published: July 2008
With the passage of the 2007 appropriation bill (H.R. 5441) for the Department of Homeland Security (DHS), among other rules, compliance with security rules formally fell under the authority of DHS. Prior to that act, the American Chemistry Council (ACC) enacted a requirement for all members to require security assessments of all facilities as part of the Responsible Care program. The ACC initiative, which started shortly after the September 11, 2001 terrorist incident, appears to have been a wise action in spite of the burden and expense that it spawned. By taking action, a more realistic program was established than otherwise would have been devised for inclusion in Responsible Care was formulated to pay attention to the majority of security issues that concern relevant organizations. In addition, by endorsing third party verification, many of the potential objections from organizations that oppose the chemical industry were somewhat muted.
Objections still exist that could color future developments (as seen with the Chemical Facilities Anti-Terrorism Act of 2008 currently working its way through Congress), but the program is basically logical and functional. Unfortunately, sunset provisions in the current rules have left the door open for new legislation, which are essentially aimed at continuing the rules, but are also allowing efforts to increase the requirements. These issues are not likely to fade and neither are the security fears of industry opponents, so chemical manufacturers will have to adjust, though there are cost consequences that may begin to alter the financial and operational landscape of the chemical industry. While these security costs have centered more on the U.S., other regions are exploring similar rules to varying degrees. The economic impact of these security requirements are significant, though not necessarily over-bearing unless margins are very tight. As a result, the long term effect will likely be an addition to inflationary price increases in addition to those posed by rising fuel prices. The problem will be for competitive situations, where one product has significantly higher cost increases than another, though the fuel price issue may well over shadow added security costs. This implies a pending shift in parts of the industry, but also may increase the trend away from manufacturing in western countries and toward Asia and China.