December 27, 2011

Ammonium Nitrate Security Program

Proposed Rule
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Additional details
Agency
Department of Homeland Security
Regulatory Identification Number
1601-AA52
Agency Name
Department of Homeland Security
Rule Publication Date
08/03/2011
Dollar Year
millions 2010$
Time Horizon (Years)
10

RULE SUMMARY

This proposed rule would implement antiterrorism measures to better secure the homeland. The Department of Homeland Security would regulate the sale and transfer of ammonium nitrate pursuant to section 563 of the Fiscal Year 2008 Department of Homeland Security Appropriations Act with the purpose of preventing the use of ammonium nitrate in an act of terrorism. This proposed rule seeks comment on both the proposed text for such a regulation and on several practical and legal issues integral to the development of an Ammonium Nitrate Security Program.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
millions 2010$
 
Time Horizon (Years)
10
 
Discount Rates
3%
7%
Expected Costs (Annualized)
$42.7-$148.1
$42.7-$148.2
Expected Benefits (Annualized)    
Expected Costs (Total)    
Expected Benefits (Total)    
Net Benefits (Annualized)    
Net Benefits (Total)    

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
A keyword and RIN search return the NPRM in regulations.gov. The regulatory assessment is available by clicking on the docket folder, but it does not appear under "supporting and related material." A keyword search, but not a RIN search, turns up the NPRM on the DHS website. A Google search on the RIN does turn it up on the DHS website. The site gives some useful summaries.
4/5
2. How verifiable are the data used in the analysis?
Data used for benefits in breakeven analysis are sourced and linked. Some data on affected entities, fertilizer use, etc., are sourced but not linked. Two tables of estimates of the number of sellers and buyers are not very well documented; the reader would not be able to verify the numbers. Some data, such as wage rates, are provided in an appendix. Some numbers are borrowed from other sources (e.g., DOT for VSL), with a cross reference rather than a pinpoint citation to an original document. Costs to government are not sourced at all.
2/5
3. How verifiable are the models and assumptions used in the analysis?
Analysis assumes registration and verification are 100 percent effective with no evidence presented. About half of the ancillary assumptions are documented with citations to government statistics or research; readers would not be able to verify the other half.
2/5
4. Was the analysis comprehensible to an informed layperson?
The analysis is not difficult to follow or understand, but some technical background is required. There are some attempts to explain security impacts and value of a statistical life in general terms.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
The RIA states the benefit is "reduced vulnerability to terrorist attack using ammonium nitrate." The text notes that the real benefits are avoided casualties, property damage, and "other nonmonetary impacts" such as reduced emergency response expenditures. These are all outcomes of direct interest to citizens. The RIA also states that a "benefit" of the regulation is that it allows DHS to comply with the law requiring the regulation. This confuses activity with outcomes.
4/5
Does the analysis identify how these outcomes are to be measured?
The RIA identifies how the benefits would in theory be measured: reduction in risk multiplied by the value of the adverse consequences avoided. It performs a breakeven analysis based on the Oklahoma City bombing to assess how large the benefits would have to be to justify the costs. Measures include deaths, injuries, property damage, and emergency response expenditures. So while the RIA does not estimate outcomes, it clearly indicates how they can be measured.
3/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
It is more a "transmission mechanism" than a full-blown theory: requiring all buyers or sellers of ammonium nitrate to obtain an identification number, and then requiring verification when transactions occur, will prevent terrorists from getting ammonium nitrate. Individuals will be compared to a terrorist database before they can receive a number. It is at least a plausible and logical hypothesis that this will screen out some terrorists.
3/5
Does the analysis present credible empirical support for the theory?
No evidence provided demonstrating the effectiveness of registration and verification. No discussion of the effectiveness of similar regulatory programs for other substances. The only evidence cited was use of ammonium nitrate in some bombings, so IF the regulation reduces terrorists' access in the United States, it might reduce bombings.
1/5
Does the analysis adequately assess uncertainty about the outcomes?
The RIA acknowledges uncertainty in estimating the risk reduction or baseline risk of terrorist attacks, then simply uses the Oklahoma City bombing as the best indicator of damages. The RIA uses DOT's ranges of values of a statistical life and injuries. All other figures used to calculate benefits for the breakeven analysis are point figures.
2/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
2/5
Does the analysis identify a market failure or other systemic problem?
Examples suggest there may be a problem. The RIA cites instances in which terrorists used or possessed ammonium nitrate but does not even explain if it was stolen or purchased legally. Also mentions that states regulate ammonium nitrate and that the industry has adopted a voluntary "know your customer" program, but simply asserts these are not enough.
2/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
No real analysis showing why industry would either intentionally or inadvertently sell to terrorists or why recent industry initiatives or state regulations are insufficient.
1/5
Does the analysis present credible empirical support for the theory?
The only evidence is anecdotes showing terrorists sometimes use ammonium nitrate. No evidence presented showing how/why they got it or how prevalent this problem is. Unless overseas bombings use U.S. ammonium nitrate, the regulation will not affect the overseas bombings cited as evidence of need for the regulation.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The problem is assumed to exist with certainty. The breakeven analysis reveals substantial uncertainty about the probability of a major bombing. The analysis also includes the uncertainty surrounding the value of each life lost due to bombings.
3/5
7. How well does the analysis assess the effectiveness of alternative approaches?
2/5
Does the analysis enumerate other alternatives to address the problem?
Alternatives for implementing the regulation considered include paper-based, web-based, or telephone registration; use of a web portal or call center or both for verification; communication with applicants via U.S. mail instead of Internet; establishment of new capability in the department to manage the process; requirement of records retention in a government-owned central database; requirement of registration of agents as well as buyers/sellers; not exempting explosives.
3/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
Each of these alternatives is a small tweak on the basic regulation, which requires registration and verification. No fundamentally different alternatives here.
1/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
Analysis did not calculate different levels of outcomes for different alternatives; only costs.
1/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The RIA says baseline terrorism risk is difficult to know. It did not calculate a baseline at all. The analysis estimates that the regulation breaks even if it prevents one OK-City type bombing every 14 years, but fails to note that in the absence of the regulation, it has been 16 years since the original bombing. How can the regulation lead to one fewer bombing every 14 years if none have taken place in absence of the regulation?
1/5
8. How well does the analysis assess costs and benefits?
2/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Costs estimated include the time cost of registration, appeals, point-of-sale verification, record-keeping, reporting, audits/inspections, and government administration costs. Registration is estimated to include both travel cost and opportunity cost of time. Cost of web portal and call center are estimated separately in the RIA. Some incomplete or qualitative discussion of other alternatives occurs in the Reg Flex section, but no comprehensive estimates of the total costs of alternatives are provided.
3/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Direct expenditures to comply with the regulation are estimated, along with opportunity costs of time.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
There are some statements about cost passthrough but no real analysis. Businesses and farmers are assumed to bear the entire burden.
1/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The RIA accounts for costs that some parties will bear because they are not aware of the regulation and hence make trips where they cannot purchase ammonium nitrate. No other behavioral response, such as substitution of other fertilizers and their effects, is considered, even though the NPRM indicates DHS received substantial comments on this in the ANPRM.
0/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Costs presented for low/high population and low/high transactions estimates, but the basis for these different estimates is never really explained. Costs of both paper and electronic record-keeping are calculated because regulated firms may choose either.
2/5
Does the analysis identify the alternative that maximizes net benefits?
Benefits were not calculated, so net benefits could not be calculated. A breakeven analysis provides some information on the relationship between benefits and costs for the chosen alternative.
2/5
Does the analysis identify the cost-effectiveness of each alternative considered?
A breakeven analysis provides some information on cost-effectiveness, informing us of how frequently the regulation would have to prevent an Oklahoma City-type bombing to justify the costs. No attempt to assess how plausible the resulting figures are. Breakeven analysis performed only for the chosen alternative.
2/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Reg Flex section estimates that most affected entities are small businesses but asserts there will be no significant impact. A table presents average costs for different facilities, such as landscaping services, golf courses, and farms with and without Internet access. The analysis also lists the top 15 states in terms of ammonium nitrate consumption.
4/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Public as a whole. Surely people in different locations face differential risks?
1/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The decision to issue a regulation, and to require registration, seems to be driven by specific legislative requirements. Small tweaks presented as alternatives were often rejected due to higher costs.
2/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
Breakeven analysis presented only for the alternative chosen, so it is not clear whether DHS was at all aware of cost-effectiveness or any relationship between benefits and costs of alternatives.
1/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No commitment to goals/measures, and the RIA provides an insufficient foundation for developing them. It discusses the benefits of averting one terrorist atrocity—but this would imply a "pass/fail" performance measure that would not indicate progress.
0/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
It is not clear if DHS has ready access to data that could be used to assess actual benefits or costs of the regulation after it is implemented.
0/5
 
Total 24 / 60