Podcast: The Cost Climate Change Has On Process Safety

Traci: Absolutely, a lot of examples that you gave there and a lot of examples that you can visualize in your mind because of the coverage that they all received. And Dale, this topic rose from an article that will appear in our main issue of Chemical Processing that you wrote. It's titled, Improve Your Plant's Resilience. My question to you, is there proof that climate change is a real concern, and why is improving resilience is a strategy priority?

Dale: Thank you for that. Good question. You know, when I reviewed the natural disaster data for the last 40 years, very clear that there is a definite trend of increasing natural disasters. For example, in 1980, there was a little over 200 natural disaster events worldwide. In 2020, there are over 800 events, a four-fold increase. And as Trish pointed out, floods and storms accounted for 70% of the total number of natural disasters, which resulted in $4.5 trillion in damages. And if you look really more specifically at the data over the last 20 years, The Munich Reinsurance America has done a great job at developing, accumulating the data. Floods and storms have increased over 80%. I recall a presentation I gave at a university not too long ago, and there was a client, someone in the front row with a bunch of placards saying, "Climate change isn't real," and really kind of being disruptive. So, as I was getting started, I said, "Well, let me just clarify that I'm really talking about the increase of natural disaster events that may be related to climate change but are occurring with increasing intensity and frequency. I'm not going to argue with you about if there is climate change or not. I'm going to show you evidence that indicates something big is going on."

I think that there continued to be skeptics about climate change. But you really got to look at the consequences of what's occurred from industrialization, from consolidation of people into major metropolitan areas where we have higher exposure levels. The data that shows it's just not a coastal phenomena, as Trish pointed out, the floods in Michigan, the Iowa events, the tremendous event in 2020, in China, which was the largest single disaster event in the world, was the flooding there with estimated losses of $17 billion of which only 2% was covered by insurance.

So, I think there's just so much information. When one considers that 2020 tied 2016 as one of the hottest year, the hottest year on record, and that the decade 2010 to 2020 was the hottest decade on record. We just can't, I don't think, deny that there appears to be a very strong correlation between greenhouse gas emissions and weather change. I think we're developing more and more evidence. And, you know, there also is going to be some, I think, driving forces from the Securities and Exchange Commission for companies to become more transparent in identifying high-risk facilities, or facilities that are in areas that could be subject to significant climate change event. So that's going to be a driving force that's going to raise awareness as well.

And just the last point, sometimes insurance, people that have insurance say, "Well, I don't need to take any resilient actions because I have insurance." But even in North America, which is the most insured market in the world, only about half of the natural disaster events are actually reimbursed or covered by insurance. So there's still a number of gaps, and we don't want insurance to be an inhibitor to taking resilient actions to improve your facilities, as well as to influence your design of expansion or new facilities.

Traci: Well, you brought up a lot of great points, and in the past, Trish and I have talked about some of those points, the location and bringing more concentrations of people into areas, and the greenhouse gases. But my question to both of you, how can you understand natural or man-made threats that might impact your facility? Some of these are anomalies that you could never even fathom. Trish, do you have any idea or any thoughts on that?

Trish: I think, there's now been a quite an established field of science in Natech risk assessment, so natural hazard triggering technological disasters. So we now have some of the tools in our toolkit to be able to do these assessments and really understand what the impact could be. The challenge is that when we talk about Natech risk assessments, we need to think about what the consequence is, not necessarily what the triggers are to get there. We need to be putting in place risk assessments that identify the resilience that we need to build into our facilities, as Dale mentioned.

You've got to understand the hazards that are there. And then you got to plan to defend against them in any way that you deem necessary at that point. I think, you know, take a look at some of that great work that's come out of the European Union on Natech risk assessments by Elisabeth Krausmann. There's certainly a lot of excellent work there.

Traci: Dale, do you have anything to add?

Dale: Yeah, I would add to that as well that more attention needs to be focused on preparing for, responding to, and recovering from these natural disasters. What used to be a storm once in a hundred years, there is really now a multiple series of storms, perhaps in a decade. The frequency has increased tremendously. You look at the number of hurricanes that occurred in the North Atlantic, the highest on record last year. We need not to be lulled into complacency by thinking in terms of frequency in a hundred years because we really need to look with frequency in the last 10 years. And, realize that if it hasn't come to your neighborhood yet, it will, and it will fairly soon.

You know, we thought for a long time more of hurricanes as coastal concerns only, and then we have tremendous floods in the Midwest, with tremendous costs. We have wildfires in the West, which destroyed over a thousand homes. So there's a lot of evidence if we look with a sharp eye in the last few years that would say these once-in-a-lifetime events are really now once in 5- or 10-year kind of events. So we have to prepare. You know, and it's everything from looking at new design. This discussion was prevention through design, safety is being incorporated there more and more into a consideration. The natural place to look at also at is resiliency threats, the vulnerability as well.

And you have to consider things like evacuation plans, are they adequate? Are they up to date? What about the plant shutdown procedures? How am I storing my data electronically? Are decision trees prepared and current for the now operation? Are people properly trained to implement? There's a lot of considerations that need to go into this. And I think there's more and more incentives. That's why I think that this discussion we're having today is so, so important.

You know, we're on the edge of tornado season. In fact, in the Southeast, they've had some already. Hurricane season isn't too far behind. These events are coming to your facility. And as I said earlier, and you know, I think there's going to be more driving force from the Biden administration to identify these risks to stakeholders of plants that may be subject to climate change threats.

There's a lot of energies that are coming together, I think, to take a fresh look, a harder look, and get better prepared for the what-if may occur. And I know how difficult it can be having spent, you know, over 30 years in the engineering business, how difficult it can be to argue for funding for an event that may occur when there's so much demand for funding for what has occurred, or to capital improvement, or expansion. But nevertheless, I think that the awareness level has significantly increased. And the likelihood, unfortunately, that's probably going to get worse before it gets better.

Traci: Now, Trish, you and I talked what happened in Texas earlier in this year, and you mentioned that these plants aren't built with the same intent as plants that see winter storms regularly. Is it smart to build new facilities or retrofit current plants with the fortitude for all possible climate conditions?

Trish: Well, I think, you know, Dale just summed that up quite well. Yes, we need to be making sure we are building and retrofitting our plants so that they are capable of being resilient against what, quite frankly, they're likely to see in their plant life. We are likely to see continued intense weather patterns that will impact what's going on. So I think it would almost be negligent to not take these things into account. We need to make sure we understand what are the likely possibilities we could see.

But as Dale said, we can't base this on the historic one in a hundred years, because, you know, one-in-a-hundred-year floods seem to happen in Australia at the moment every year or so. You know, one-in-a-hundred-year fire, intense fire season seems to happen every couple of years. We need to not base it on the likelihood, we do need to base it on what the consequence is so that we can actually build our systems resilient to those consequences.

Dale: One other point that you did ask was about man-made disasters. And unfortunately, those are increasing as well. Whether it's just been taken in the last few weeks with the shooting events in California, Georgia, and Colorado, things like almost every week, nowadays, something like that going on. And then cybersecurity issues that have touched almost all of us today. And so it's caused a tremendous amount of energy to go into reviewing the security of their IT systems. It's a challenging world that we find ourselves in.

And then on top of that, greenhouse gases accumulate in the atmosphere. And there's been a lot of attention that's been given to the current emissions. Of course, and the U.S. has really led the world in terms of reducing its emissions largely because we converted to natural gas from coal. But, you know, other countries have not followed that case. And so what we have is the greenhouse gases remained in the atmosphere for decades. And we're still putting a significant amount of iron into the atmosphere. So the weather we're experiencing today is only going to get more complicated 5 years from now, or 10 years from now, because there's consistent accumulation of greenhouse gases.

Trish: And Dale, what goes into...thinking about all of this, what goes into vulnerability and risk assessment for plant assets and operations, and what are some of the tools available? You said, you know, it's a very nuanced and very difficult, but are there tools available that folks can tap?

Dale: There are an increasing number of tools, and some would say there's perhaps even too many tools because people don't know that we're overwhelming the marketplace almost to some of these tools. Personally, as I mentioned, I worked at AECOM, which is the largest global engineering firm. And we collaborated with IBM a few years ago to create, on a pro-bono basis, a city resilience scorecard, which was based on the 10 essentials for disaster risk reduction.

And that city scorecard now has been used by hundreds of cities around the world to help them develop a resiliency plan. We also...the same team came back together a couple of years ago and created a scorecard for buildings, or multiple buildings on a campus. Again, following the same 10 essentials of disaster risk reduction. And both of these scorecards are facilitating around self-assessment and in providing a series of assessment questions where you would self-score on the basis of, zero, no action has been taken, or five, we've got a plan in place or we've done this. So those are two examples.

Another is the Flood Resilience Measurement model for Communities. This was an effort that was spearheaded by Zurich Insurance, a flood model, Mercy Corps, the International Red Cross, and others work together to create this Flood Resilience Measurement model for Communities. And it's been applied in hundreds of communities. Most of the application of both the scorecards that I mentioned, as well as the FRMC, has been applied outside of North America. And again, it seems like those communities are countries where insurance is not available tend to be more motivated to take action to improve their resilience.

But, you know, one final point, these tools can be very important. You know, they're a methodology on how to evaluate your resilience and the steps that you could take to improve it in the short, mid, and longer term. But the process of how you use these tools is really as important as the tool itself. You really need to bring together a cross-functional team of people that have authority and responsibility in understanding of the issues, that you can really understand and get buy-in on what kind of threats we want to be resilient to, and then look at the steps and actions we need to take. Companies, cities tend to be...can become very siloed by function. And this is an activity that needs to be cross-cutting. And so how you bring people together, how you interact and develop this as a team, that's really, I would say, almost the most important.

Traci: All right. Trish, it sounds like he's speaking your language. I mean, I've heard these same words out of your mouth so many times that you have to have buy-in from everybody. And you have to make sure that everybody understands that. How do you get employees on board with all of this? And what are your thoughts... He mentioned tools. There's a lot of tools out there. Sometimes it gets too fuzzy and people can't, you know, zero in on the proper tools. What are your thoughts on that? I know I toss a whole bunch at you, but you're good at ferreting through.

Trish: Okay, so first of all, to get employees on board, we need to make sure that they're involved. You know, the employees have a lot of valuable information in how our facilities actually operate in real life, as opposed to maybe how management think the facility operates. By getting the employees involved in the assessment, they can really start to shed light on all sorts of different aspects that they think will help the resilience of the facility. Because they don't want to see the facility fail, they want to see it succeed. So get their involvement early on in the risk assessments and the different tools.

Then make sure that there's clear communication with everybody in the workplace around what you have determined, what your response is going to be, how you're going to manage it, how you're going to communicate with them in the instance of an emergency that occurred? Understanding that traditional communication systems may also be out at the time. And that's something that we often don't really put enough thought into in the response phase. What happens when the phone lines don't work, and the mobile, or the cellular system is out as well? How are we going to communicate with people?

In terms of the tools, yes, there are a lot of tools. And that does become quite complex because it's easy to sort of slip into the idea of, "Well, I won't need to do anything about that, because there's just too many tools to think about. So, you know, I don't need to think about any of them." But the fact is, you've got to go through and pick the ones that are going to be the most use for your facility to identify the risks you have. And that is really focusing on the consequences, not the likelihood of those risks. What are the consequences of those risks? And then putting in place the response systems, you need to be able to back that up and deal with whatever emerges at you. Because at the end of the day, we still have responsibilities even in, you know, what was traditionally called the Act of God area, we still have a responsibility to not only our workforce but our communities to keep them safe from our facilities should something go wrong.

Traci: One of the things maybe not considered is the need for access to money to throw at these problems. And, Dale, you mentioned it, and you're talking a little bit about insurance. But what can be done in this regard? Is it just an insurance issue or there are other resources out there?

Dale: Well, you know, I like to make a comment too. I think Trish did a great job covering the employee aspect. The element that I want to bring into it is that the employees of the company need to be thinking about how to make their home resilient, how to protect their families as well. So there's a dual advantage of informing the workforce, educating, getting them very much involved in improving resilience. But there also needs to be a trap, crossover so that we get the employee's families also protected.

You know, the thing is, I was co-chair for a couple of years at the UN private sector advisory group called ARISE. And, again, it was a private sector advisory group. And we wanted to end the Sendai framework allows for this, for the private sector to become more of a partner with the public sector in addressing resilience. It's a huge challenge. And many of the largest GDP organizations in the world today are multinational companies, not government.

This is a good example that employees of a company become members of the public sector when they go home. And so to the extent that we can inspire the public and the private sector to tackle this issue of improving resilience together, it's going to create resources and funding, whether it's green bonds, access, or private sector funds, or tax credits that could be issued to companies who are improving resilience, not only in their plant but other access path to or from the plant, perhaps. I really do think that we really need to come together as the public and the private sector, to leverage not only the know-how but also the significant resources that are going to be needed. We're not in an era where government can do it all, not today.

Traci: Trish, what are your thoughts on this?

Trish: Yeah, look, I think when it comes to understanding the financial impacts, we need to really make sure that, again, and I'll come back to it, understanding the risk, understanding the consequences, understanding how much the consequence costs. Because I spend most of my time working in jurisdictions that deal with the concept of ALARP or as low as reasonably practicable. And that means that you constantly have to continue to implement risk control measures, because every day, the knowledge you have improves. There may be new technologies that you can put in place to reduce the risk. And so you need to constantly be upgrading your facilities.

One of the key tests in a lab flow is you need to understand the cost of the threat. So what is the cost of the incident if it happens? And as Dale mentioned, we need to be very careful about this assumption that, you know, well, insurance will take care of it. Insurance doesn't take care of everything. There are costs associated that need to be factored in. And in fact, you should be still factoring in the overall cost when you do your lab assessment. And once you understand the cost of the threat, then you look at your controls that you put in place to manage that threat. You have to implement the controls unless the cost is grossly disproportionate to the incident itself.

Now, that's usually anywhere between three to 10 times the cost of the incident would be deemed grossly disproportionate. So the idea is you have to invest to reduce the risk of your facility. And reducing the risk may not be preventative measures, particularly in Natech incidents. It may only be mitigation because that's what you're left with if it's an existing facility. It's not like you can pick it up and move it completely to an area that's not going to be struck by a natural disaster. And I would suggest you can't move anything anywhere that will be not struck by a natural disaster of some sort. They will continue to occur. And as Dale said, an increased frequency, which is historically what we're seeing as well.

So we need to make sure that we just understand the costs that we're dealing with, not assume that insurance is going to deal with it, because insurance doesn't deal with everything. And even if it did, then you're going to have very high premiums and that's going to be an ongoing operational cost for you into the future as well. The less impact you can have in terms of damage to your facility, the better position you're going to be in. So the resilience, the building, the preparing for it, and then being able to respond afterwards is financially good business strategy.

Dale: I was going to say I was reminded of a client that I worked with, that their chemical plant was exposed in an area where storms do occur. They can be significant. But also droughts would occur. So, the plant, of course, needs water to operate. And this particular client, having looked at and survived through a couple of different disaster events, he really decided, "Hey, there is some land available. Let's create an impoundment area that during periods where we have a flood, we can divert the water into the impoundment. And that can serve as a resource for us during periods of the droughts, which often do occur."

So there was a proactive move that, yes, it did cost money to create this kind of impoundment area, detention basin. But on the other hand, it avoided plant shutdowns, plant damages, and so on. And the investment was really worth it, and the plant became far more resilient.

Traci: What is the difference between adapting to the climate change and mitigating the risks? Obviously, adapting to it by creating that runoff but also mitigating the risks. How...is there a difference?

Dale: Well, you know, there is also an international activity now they're starting to develop called the Coalition for Disaster Resilient Infrastructure. And this is looking at disaster-resilient infrastructure to not only include climate-related events, but also geophysical- and geomorphology-type events, volcanoes, tsunamis, and so on.

You really cannot necessarily eliminate the risk, but what you can do is mitigate the effects of the event. And I think you need to understand the risk in order to be able to take cost-productive steps to reduce the impact of the risk. We're not going to prevent natural disasters, for example. We may not be able to prevent man-made events as well, unfortunately. But what we can do, I'll take steps to reduce the impact of those events on communities or on plants.

Trish: I think that's absolutely right. It is around making sure that you've got the ability to mitigate the impact that you might see. The adapting to it might well be the idea of, you know, winterizing your plants, with the expectation that there will be freezing temperatures in places that you wouldn't normally see. But then how you actually still respond to it at the time is about the mitigation.

Traci: Excellent point there. And Dale, I wanted to get your thoughts on the Build Back Better Plans, should facilities look at their peers and fortify their plants with lessons learned from all over?

Dale: Well, Build Back Better certainly did get a lot of attention during the last presidential campaign. However, the UN Disaster Risk Reduction organization, which is charged with implementing the Sendai framework of 2015, which is a 2015-2030 on a global initiative that 186 countries signed up for. It really is an important concept, but we should look at definitions too because when we say build back better from the UN perspective, it was the use of the recovery, the rehabilitation and reconstruction phases after disaster, to increase the resilience, to integrating disaster risk reduction measures into the restoration of the physical infrastructure, and into the revitalization of the plant in the community, and minimize the impact on the environment.

I did a lot of work with small businesses in New Orleans after Katrina, where over 80% of the small businesses in New Orleans were wiped out from Katrina, never to reoccur. Not only was a significant loss of life, of course, but there also was the elimination of the small businesses. In some cases, the city stepped up and said, "Putting in a business or a residential neighborhood in this environment is inappropriate, and we're not going to allow this land to be used in that any kind of way that's going to affect the risk of people down the road." So in some cases, you don't build back at all. You make the decision it's too high risk of an environment and we need to relocate into a different area.

And these areas, they could be used for rain gardens, they could be used for green infrastructure, but they should not be used for housing businesses, facilities, or residential neighborhoods. But when you do build that, it's really got to be not only based on what today's threats are, but how those threats could be accelerating into the next 10 or 20, or 30, or 40 years into the future. It's a moving target. Unfortunately, we're not at the pinnacle of disaster events yet. So it really does create a significant challenge to look at.

Where are you going to put that next plant? I did some work around an oil spill, for example. And one of the things that I...from an oil spill, we want to have an archive of the effects into a library. And this was a coastal oil spill. But the archive area is really set up in the middle of the country because they've had minimal amount of threat. And so that's one example of how do you build back better, perhaps in a different location in a lower risk environment.

Traci: Trish, anything you'd like to add to that?

Trish: And just one last point for me, and I did mention that insurance doesn't cover everything. But your insurance engineers, when you're at a facility, are really quite a useful resource to you. So your insurance company is going to send out risk engineers that are going to do a review and an audit on your facility on a regular basis, that they understand the risks that they're taking on when they insure you. These engineers have an enormous wealth of knowledge. Tap into what they've got to show you and got to help you with, because they will be able to offer you insight into some of the frequency of natural disasters, particularly in your area, as well as resilience measures that you can put in place at your facility to mitigate any particular incident.

So, start to view your risk engineers from your insurance company as your friends. They're there to help you, and they actually have an enormous amount of valuable information that they can share with you to help you prepare and become more resilient.

Traci: Dale, final thought?

Dale: That's really an excellent thought. Companies like FM Global that have a very capable resource pool of engineers that work hand in glove with their clients, under the idea that all risk is manageable. And so, they are partners in us. And I think I mentioned earlier that in North America, maybe half, maybe slightly more than that, of losses are actually covered. We think about National Flood Insurance, and that has capped as well in terms of how much it does reimburse.

So, I think today, we really need to encourage people to look beyond. It's important to have insurance, business continuity, practicing insurance is important. But they really need to look beyond that and say, how do we make our facility more resilient? How do we better manage the risk to our shareholders? If my plant closes for three months, six months, because of a hurricane in Puerto Rico, how am I going to offset that revenue flow? How am I going to offset the shortage of products, that may be a healthcare product that I won't be able to deliver now? And what's my image going to be in the marketplace as a consequence of that, of not being prepared?

And, what about the supply chain? How do we better ensure there's no interruptions there? Toyota lost a billion dollars a few years back, because the floods that Trish mentioned in Asia, a critical component from the supplier. One plant the supplier had was interrupted by the flooding. And so supply chain is becoming a part of the partnership as well. And that companies need to look down that chain and fish critical pieces, single plant components, single plant chemicals that are needed.

It's in the company's best interest to figure out how to avoid any interruption of that product as well. So improving resilience is really kind of a team sport with your insurance company, and with your supply chain, and also with your clients. How can I get my product to my client if my transportation patterns are interrupted? So, it gets to be really complex in a hurry.

Traci: Obviously, an important topic to discuss. I appreciate all of the time that you put into this, and the back and forth really was insightful. And I really thank you for that. Unfortunate events happen all over the world, and we will be here to discuss and learn from them. Subscribe to this free podcast so you can stay on top of best practices. On behalf of Trish and Dale, I'm Traci, and this is "Process Safety With Trish & Traci."

Trish: Stay safe.

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