Regulatory Governance and Risk Management

Occupational Health and Safety in the Coal Mining Industry

Binglin Yang

• Publisher: Routledge
• Year: 2011
• Print ISBN:
  9780415897129
• eBook ISBN:
  9781136640247
• Topic: Business
• Subtopic: Business General
• Index: Business

Regulatory Governance and Risk Management will be the first book addressing the diffusion of risk-based governance in the coal mining industry from a health and safety standpoint. More specifically, it aims to understand a puzzling phenomenon. Since the 1990s, the approach of risk-based governance has been widely adopted in almost all developed countries in Europe and commonwealth countries. It, however, has diffused much more slowly in the U.S. Using a diffusion approach and comparisons between Australia and the U.S., this book examines mechanisms that both drive and prevent the diffusion of risk-based governance in the coal mining industry.

This book has two major selling points. First, this is a timely work given the Upper Big Branch coal mine explosion occurred in April, 2010. After this disaster, many asked why an enhanced level of enforcement after 2006 has not prevented catastrophic accidents from occurring and why risk-based governance, which helps other countries achieve better safety performance, has been largely ignored in the U.S. This book answers these questions and makes recommendations on how to remove barriers in moving toward risk-based governance. Second, this book is readable because it embeds theories into storytelling and gives particular emphasis on the influence of key strategic individuals.

1 Introduction

DIFFERENT REGULATORY APPROACH, DIFFERENT RESULTS

At 3:27 p.m., April 5, 2010, an explosion occurred in Upper Big Branch coal mine in West Virginia, the U.S. The disaster killed 29 miners and seriously injured another two. This is the worst coal mining accident in the U.S. since 1970, when 38 miners were killed in the Finley Coal Company mine explosion. The investigation of the disaster is still undergoing. However, a lot of information shows that the explosion probably resulted from the poor maintenance of ventilation systems in the mine, because a total of 76 orders, which are related to the operator's failure to comply with the approved ventilation plan, had been issued to the mine since 2009 before the explosion occurred (MSHA, 2010a).

Unfortunately, such a catastrophic event is not the only one in recent years. Just four years ago, on January 2, 2006, a similar explosion, which occurred in the Sago mine in West Virginia, caused 12 fatalities. As a response to the Sago disaster, the U.S. Congress and the federal regulatory agency Mine Safety and Health Administration (MSHA) put much greater emphasis on coal mining safety. However, their “shoot from the hip” approach is questionable. Mine safety regulation in the U.S., which is characterized by a highly prescriptive approach emphasizing tough enforcement and penalties, has become increasingly prescriptive after the Sago accident. MSHA would increase its budget to a historical level, $357 million in 2010 (DOL, 2011). This is close to MSHA's peak budget in 1980, which was inflation-adjusted to $375 million in 2009 dollars (Figure1.1)¹. Total citations and orders issued reached 175,079 in 2009, the highest level since 1990 and 37% more than that in 2005 (MSHA, 2010b). Six months after the disaster, the Congress enacted the Mine Improvement and New Emergency Response Act (the Miner Act), which dramatically raised civil penalties for violating the law. As a result, the amount of assessed penalties for violations in 2009 was 6 times that in 2005 (ibid). The question then is why this enhanced level of enforcement and spending has not prevented catastrophic accidents from occurring. Why have other countries, such as Australia, which have a different regulatory approach, achieved better mine safety performance than the U.S.?

Figure 1.1 MSHA budget, 1979-2010 (millions).

Source: Budget of the U.S. Government, FY1981-2011.

Recently, there has been a rapid growth of a new regulatory approach, which I call risk-based governance in this book, in coal mining safety regulation around the world. This development of risk-based governance involves two different but interrelated processes, the growth of risk-based regulation in governments as an alternative to traditional prescriptive regulation and the increasing adoption of voluntary risk management systems in corporations. In terms of government regulation, coal mining safety regulation in most countries has long been dominated by the prescriptive approach, partly because of its distinct history and highly hazardous working environment. Mining was also covered by legislation separate from general occupational health and safety (OHS) before the 1970s. This situation gradually changed in European countries after the publication of the Robens Report in the U.K. in 1972. This report criticized traditional prescriptive regulation and emphasized that the responsibility for controlling workplace hazards should be put on those who create the hazards. Based on the recommendations of the Robens Report, the U.K. Health and Safety at Work Act was enacted in 1974. This act imposed a general duty on operators to provide safe and healthy workplaces with few prescriptive requirements. The requirement of a general duty of care implies that employers need to develop risk-based management systems to fulfill their responsibilities. This act also integrated mining regulation into general OHS regulations.

During the 1980s and early 1990s, however, when risk-based regulation spread to general OHS regulation in almost all developed countries, the mining industry still lagged behind because almost all major mining countries remained under a prescriptive regulatory regime. This changed in late 1990s when coal mining safety regulation in Australia—the largest coal exporter in the world—moved toward the approach of risk-based regulation. Queensland (Qld) and New South Wales (NSW) passed new mining statutes in 1999 and 2002, respectively. Following a Robens-style regulation, these new mining statutes embraced the general duties and systems-based standards based on risk management instead of specific standards.

Meanwhile, some of the largest mining multinationals tried to promote risk management in the mining industry worldwide (see Chapter 3 for the detailed process). Many of these leading players are Australian-based companies, such as Xtrata, Rio Tinto, and BHP Billiton. Along with the influence of mandatory requirements of new legislation, risk management systems have been widely adopted by Australian mining companies.

The change of approach in Australia has had a dramatic impact on safety performance. According to the Safety and Health Performance Report, 2006–2007, published by the Minerals Council of Australia, from 1997 to 2007, the Australian minerals industry average fatal injury frequency rate (FIFR) was 0.07, compared with the U.S. rate of 0.17. For the coal sector, FIFR in Australia was 0.06, which is substantially lower than the American equivalent rate of 0.16 (Minerals Council of Australia, 2007). By contrast, in the period 1989–1999, Australia had just slightly better average FIFR than the U.S. in coal mining and performed worse in metal mining (Minerals Council of Australia, 1999). Figure 1.2 shows that Australia has gone through a much more remarkable improvement in safety performance than the U.S. during the period of 1991–2007.

There is no doubt that other factors may play a role in the improving outcomes achieved in Australia. For example, since the 1990s, there has been a much larger scale of consolidation in Australia. Consequently, fewer small mining companies operate in Australia than in the U.S. Since many things changed during that period and these factors can hardly be controlled in research, it is almost impossible to approve the causal relationship between the change of regulatory approach and the improvement of safety performance in Australia. However, it is not difficult to see the correlation between the change of regulatory approach and the greater decline of fatality rate in Australia. Poplin et al. (2008) have a similar finding after analyzing annual lost-time injury (LTI) rates for coal mines in the U.S. with respect to Qld and NSW in Australia from 1996 to 2003. They find that LTI in all three regions was reduced. Qld and NSW, however, experienced a more remarkable decline (78% and 52%, respectively), compared with 20% in the U.S. They assert that the different regulatory approach “provides one explanation of the differential decline.” (p. 1) Moreover, there is a general argument in scholarship that risk-based approach is more desirable than prescriptive regulation, although many problems in its implementation need to be fixed (see Chapter 2).

Figure 1.2 Coal mining fatal injury frequency rate comparison between the U.S. and Australia (1991-2007).

Source: Minerals Council of Australia, Safety and Health Performance Report, 1998-1999 and 2006-2007.

RESEARCH QUESTION

This research is not attempting to approve how risk-based governance plays as a causal factor in the improvement of mining safety—this would be an almost impossible job. Nor does it intend to add to the literature about the advantages and diadvantages of risk-based goverance, as well as how to make it work in practice, because existing studies have covered the topics very well. Rather, this book aims to explore the puzzle of why risk-based governance, which is very popular in many European and commonwealth countries, has been largely ingored in the U.S. Although the coal mining industry in the U.S. has introduced risk management to some extent, the progress is much slower than in many other countries. In Australia, risk management has been used extensively. Not only has it been voluntarily adopted by many coal mining companies, but it is also mandated by legislation in major coal mining states (Qld and NSW). In the U.S., despite some initial steps that have been taken by the federal regulator MSHA to move toward risk-based regulation between 2000 and 2005, these efforts largely failed, and the basic regulatory structure remains highly prescriptive. At the industry level, only a handful of large coal producers are in the process of developing risk management systems. This phenomenon is particularly surprising considering that risk management has been widely used, not only by the coal mining industries in many other developed countries, but also for many years by other industries in the U.S., such as nuclear and aerospace.

Therefore, the research question is why risk-based governance has diffused more slowly in American coal mining safety regulation. To answer this question, three sub-questions are examined. First, since this question implies that there is a certain degree of diffusion in the U.S., it is better to understand how and why the risk management model has been introduced to some extent in the U.S. coal mining industry before explaining why it moves slowly. Moreover, as previously defined, risk-based governance includes corporations’ voluntarily adapted risk management systems and governments’ risk-based regulation. Therefore, two additional sub-questions are: what are the barriers keeping the coal mining industry from fully embracing the risk management model, and what are the barriers keeping the U.S. government from moving toward risk-based regulation?

To better address the second and third sub-questions, the study adopts a comparative approach. The U.S. and Australia are compared at the industry and government regulatory levels. Moreover, to examine the second sub-question, a U.S. company that has introduced the risk management model is compared to another U.S. company that has not.

This research not only can help practitioners understand what prevents the diffusion of risk-based governance in the U.S. and how to move it forward, but it also has theoretical implications for recently growing literature on the diffusion of regulatory capitalism in general and risk-based governance in particular.

REGULATORY CAPITALISM AND RISK-BASED GOVERNANCE

Since the 1990s, people have increasingly recognized that liberalization and privatization have led not to deregulation but, ironically, to an expansion of state regulation. At the same time, there has been a concurrent expansion of regulation beyond the government undertaken by various non-state actors at the local, national, and international levels. Recently, some scholars have contended that such a new regulatory order is better conceived as “regulatory capitalism.” Regulatory capitalism is different from “regulatory state” or “regulatory society,” because it takes neither a state- nor a non-state-centered perspective (Braithwaite, 2008; Levi-Faur and Jordana, 2005).

A defining characteristic of regulatory capitalism is “reciprocal causation” among different components of the new regulatory order: government regulation of businesses as well as regulation within the state, corporations, and broader civil society (Braithwaite, 2008, 20; Levi-Faur, 2005, 20).² In particular, it emphasizes the role of government regulation as an initial power to generate change toward regulatory capitalism. For example, the growth of government regulation of businesses demanded more regulation inside the government to oversee government agencies (Hood et al., 1999). Moreover, as Braithwaite (2008, 16) discusses, government regulation enabled corporatization that “in turn enabled regulatory capitalism.” On the one hand, the increase of government regulation has driven small firms that cannot meet regulatory requirements out of business. Added to the influence of antitrust and securitization, more and more mega-corporations have been created (Braithwaite, 2008).³ On the other hand, because of greater concern with reputation, these mega-corporations, along with global or industry associations, have formed self-regulatory regimes to regulate firms in all facets of business, such as Responsible Care in the chemical industry (Braithwaite, 2008, 22). The increase of self-regulation in industry, then, enabled more involvement of nongovernmental organizations (NGOs) in providing standards and auditing, not only for businesses but also increasingly for government entities.

An embodiment of regulatory capitalism is the recent growth of risk-based governance, which is embedded in two developments. The first is the rise of systems-based management and regulation. As shown by the discussion of the reciprocal relationship between government regulation and restructuring in businesses, corporations have increasingly adopted internal regulatory systems to ensure their corporate social responsibility in the “shadow” of government regulation (Levi-Faur, 2005, 13).⁴ As a response, government regulation becomes increasingly systems-based. Instead of requiring specific standards, government regulation encourages or mandates that businesses establish management systems to strengthen their internal regulatory capacities (Gunningham and Johnstone, 1999). The second development encouraging risk-based governance is an increasing focus on risk because of not only growing catastrophic risks in modern society (Beck, 1992), but also greater demands for transparency, accountability, and legitimacy of both government regulations and organizations (Hutter, 2005b; Power, 2007).

Hence, risk-based governance involves at least two interrelated components. On the one hand, many corporations have adopted internal risk management systems to identify, assess, and control risks in health and safety, environment, finance, and business operations in general. On the other hand, related to the idea of “systems-based regulation” (Gunningham and Johnstone, 1999), government regulations mandate or encourage the establishment of internal risk management systems. This book helps to better understand the diffusion of risk-based governance by examining the case of coal mining safety regulation.

DIFFUSION APPROACH

The emphasis on diffusion as an independent driver of the rise of regulatory capitalism is another defining characteristic of regulatory capitalism (Levi-Faur and Jordana, 2005). The role of diffusion has drawn the attention of regulatory scholars because the world is becoming increasingly interdependent, not only economically but also socially, with the advance of modern communication and transportation technologies. In such an interdependent world, decisions are made based on observations of others’ actions in different countries and sectors. Therefore, Levi-Faur and Jordana (2005,8) note that to better understand regulatory change in the contemporary era, scholars need to go beyond structural approaches and focus more on “diffusion approaches, which embrace a combination of horizontal (country to country, or sector to sector), vertical (from global to local), and bottom-up (from the domestic to the international) explanations.”

The study of the diffusion of regulatory capitalism is built upon literature on the diffusion of innovations and policy diffusion, including adjacent topics such as policy transfer, lesson drawing, and policy learning (Dolowitz and Marsh, 2000; Rose, 1991; Sabatier and Jenkins-Smith, 1988). While specific definitions vary in this literature, diffusion generally is considered as a process in which knowledge or information about ideas, technologies, policies, institutional arrangements, and organizational practices transfers among individuals or from one place to others.⁵

Moreover, such literature provides basic conceptual frameworks for diffusion studies. For example, Rogers's Diffusion of Innovations (2003) identifies five sequential stages in the innovation-decision process: knowledge, persuasion, decision, implementation, and confirmation.⁶ More important to the research here, it points out the main elements that influence the diffusion rate of innovations. Some elements are related to characteristics of an innovation, and others are associated with the people who are involved in diffusion processes. For example, first, an innovation is more difficult to diffuse if it is perceived as being more complex and less compatible with existing culture and institutional arrangements. Second, communication channels, including mass media and interpersonal connections, are necessary to spread information about an innovation.

Although most studies of the diffusion of regulatory capitalism still follow the conceptual frameworks contributed by work on diffusion of innovations and policy diffusion, one influential study has gone beyond these basic frameworks and emphasizes detailed dynamics between indivi...

Table of contents

• Front Cover
• Half title
• Title Page
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• List of Abbreviations
• Preface
• 1 Introduction
• 2 Risk-Based Governance and Analytical Framework
• 3 Diffusion of the Risk Management Model in the U.S. Coal Mining Industry
• 4 Barriers to Modeling the Risk Management Approach in the American Coal Mining Industry
• 5 Modeling Risk-Based System Regulation in Australia
• 6 Barriers to the U.S. Government’s Move toward Risk-Based System Regulation
• 7 Conclusion
• Appendix A: Methodology
• Appendix B: Interviewees by Position and Country
• Notes
• Bibliography
• Index