Late last week, the Senate Homeland Security and Governmental Affairs Committee (HSGAC) unanimously approved a bill to extend the DHS Chemical Facility Anti-Terrorism Standards (CFATS) program for an additional three years. The bill will next move to the Senate floor sometime before the end of this congress for a showdown with a bill passed out of the House sponsored by Congressman Bennie Thompson, Chair of the House Homeland Security Committee. At that point, you’ll probably see some additional amendments that could change the current complexion of the bill to make it more palatable to draw more votes. What the senate bill doesn’t presently incorporate are many of the features of the House bill. The Thompson bill includes several contentious provisions, including “inherently safer technology (IST)” review, chief among the attention-getters.

IST is great idea in theory – and is actually a fairly straightforward and simple concept.  You take one chemical process that involves a “high-risk” chemical, you identify a “lower risk” chemical that provides a similar functionality, and you do a switcheroo.  Disregarding the costs of the lower risk chemical as well as the costs associated with re-engineering the process to accept the new chemical, IST sounds pretty simple, right?

Maybe, maybe not – here’s an example that illustrates the additional costs and considerations of chemical process re-engineering that should hit home for those in the National Capital Region (or the DMV, as I’ve recently learned).

DC’s Blue Plains Water Treatment Facility, one of the nation’s largest water treatment facilities, elected to change its disinfection mechanism from gaseous chlorine to sodium hypochlorite after an evaluation of the unique operational and risk characteristics of the facility. The utility’s process change did not come cheaply, perhaps as much as (if not more than) $12.5 million in capital expenditures and an annual chemical cost increase from $600,000 (for chlorine) to $2 million (for sodium hypochlorite). But the Blue Plains folks did not make this decision because they were forced under a regulatory program – they made the decision based on an evaluation of the threat, vulnerabilities and potential consequences of a chemical release. And the most interesting wrinkle to this process change? The decision to switch was made before September 11, 2001.

Looking at IST in the larger scheme of chemical facility issues, IST is really just a component of a more complex trade off assessment, going well beyond merely switching out chemicals. Internal business decisions happen every day that include a variety of factors – including process evaluations – that ultimately consider the true “cost” (whether directly financial or indirectly risk-driven) associated with an action or process. Essentially, when costs are too high, they are addressed.

For example, following the enactment of CFATS and the passage of the Secure Handling of Ammonium Nitrate Act of 2007 (DHS is in the final stages of developing a regulatory program for AN), a not-to-be-named-company in the farm supply business ran the numbers and determined that the cost of compliance with the two DHS programs was just too great, so they stopped selling AN in bagged form. They just stopped selling it and consequently removed the regulatory exposure entirely. Now there’s a business decision – just drop the product because the margin that was previously thin in an unregulated environment evaporated. Net effect? The end user is going to have to find another company that has either accepted the reduced or non-existent margins, or they’ll just have to find a replacement chemical. That’s what I call a “top-down” approach to IST.

On the flip side, here’s a “bottom-up” example of IST. As it stands now, there’s a chemical covered by CFATS that has a very close “chemical family” relative (so to speak) not covered by CFATS. The folks that manufacture and sell that unregulated chemical are having a field day with this competitive advantage.

Think about it, the costs of compliance have to be recouped somewhere. They’re not going to be internalized, so the regulated product price goes up and the consumer bears the burden of compliance. The unregulated chemical? No compliance costs, no burden on the consumer, so the consumer is going to make a decision on its own and go buy the unregulated chemical. Not because it’s necessarily safer but because it’s cheaper.

So what does the company selling the regulated chemical do? Probably go out of business or stop selling that chemical, as in the example above. The most interesting thing about the entire situation? There’s empirical evidence indicating the two chemicals are pretty darn close when it comes to explosive energy, so while the chemicals are essentially interchangeable from an application standpoint, they’re also theoretically interchangeable as an IED precursor.

What’s my point?  IST happens every day; process decisions are made every day out in the chemical supply chain. Despite Congressman Thompson’s position on whether the Senate did the country a disservice (and to be fair, he could have been referring to the other provisions, like closing the water security and maritime security gaps), IST decisions happen right now without any regulatory requirements and are a natural result of the mere existence of CFATS. And to be clear, the IST provision in the House bill doesn’t mandate IST in most cases; the bill just requires IST reviews for the higher-risk facilities and provides the Secretary authority to direct an IST in certain highest of high risk cases.

The higher level message here is that you don’t have to bake an IST requirement into the regulatory structure to ensure chemical companies make trade off assessments and the corresponding decisions. So there’s no real loss by not having a stringent IST requirement included in the Senate bill. Companies are going to make IST-like decisions anyway in order to cut costs and reduce regulatory exposure; in fact it’s already being done!

As soon as you introduce a regimented process that requires a third party to assess an internal IST evaluation, you further handcuff the process. Not to mention the fact that there are other mechanisms already in the CFATS program that can ensure the security of those high-risk chemicals, namely the security standards. On that note, if DHS is concerned about certain high risk chemicals at certain sites, they can leverage the ambiguity of the security performance standards to set a security bar so high for the facility of concern that the costs of compliance for physical security will be overly burdensome. Once it’s too costly to secure, the facility will identify an alternative process with less burdensome security measures. The net effect is an IST decision. That right there is an IST lesson learned from CFATS compliance to date – companies will drop chemicals if they can avoid compliance costs.

To wrap this whole thing up, for those out there sitting on pins and needles as the CFATS expiration deadline looms – CFATS isn’t going anywhere. Besides, too much effort has been put into building the program, both in the public sector (inclusive of the Executive and the Legislative Branches) and in the private sector (inclusive of the regulated companies and the cottage consulting industry resulting from the program).

If you think there’s a lobbying effort out there that’s trying to water down CFATS, there would be another lobbying effort to ensure that CFATS remains and the cottage consulting and compliance assistance industry it generated doesn’t go anywhere. Which brings up an interesting point: after whatever law is enacted that extends CFATS, can the White House claim that it saved or created the jobs of all those CFATS consultants?