The environmental risks of shutdowns

The events of 2020 have caused widespread disruption to businesses. Levels of demand have fluctuated with a consequent knock-on effect on production. Some businesses have been in a better position of having to scale-up operations quickly which, in turn, brings its own risks.

Others have had to cut back output or, in extreme cases, cease operations temporarily. This prevailing sense of uncertainty, accompanied by shifting government advice and requirements, has created ongoing disruption and increased the potential for environmental liabilities.

Three key phases

In addressing these risks, shutdown procedures are critical. This is the process where you plan for what happens when your operations go into an idle state. This may include making sure systems are deactivated correctly; pipes, tanks, and other equipment are drained or isolated; chemicals, waste, and potential contaminants are disposed of properly; and critical monitoring processes are in place before starting the next phase.

The second phase – idle state – is where the risk level can be most acute. There will be fewer people on site, potentially decreasing the level of monitoring. If leaks or malfunctions of equipment take place, it may take longer for them to be detected and remediated; potentially increasing the severity of the damage caused. Similarly, severe weather events could damage electrical components, increasing the risk of environmental contamination.

Security at the idled site is paramount. An idle plant is known as an attractive nuisance – the potential for intruders and vandalism is heightened, increasing the risk of arson or the illegal dumping of hazardous waste. Meanwhile, whilst operations are shut down, it is important that essential maintenance is not overlooked and continues to be carried out. Indeed, this period can be the ideal time to conduct checks and overhauls.

The final phase is start-up. During this phase, if something was overlooked or improperly shutdown at the beginning, the resulting effects at start-up can be magnified. For example, if lines or tanks were not completely drained, corrosion may have occurred, increasing the potential risk of leaks, spills or unwanted chemical reactions in the process.

Successful navigation of these three key phases requires procedures to be formalised and staff to be adequately trained.

Range of industries exposed

It's important to realise that these risks do not only materialise in the case of a total shutdown. Scaled back production may pose an equal or greater risk to operations. Businesses in a number of sectors are faced with the risk of potential environmental liability resulting from damage due to the shutdown or scaling back of operations. Larger businesses in the power generation industry are one example. Manufacturers also face threats.     Smaller operations face the same risks and may not be as well prepared or have the proper planning and infrastructure to manage the shutdown, idling, and start-up operations.

Seize the day

Companies of all sizes should take the opportunity to reflect on their business continuity procedures and ensure they are prepared for future shutdowns. A full understanding of the risks they face – and any potential insurance gaps – are vital. Some policies will have specific wording related to idle plants, whereas others will contain temporary cessation of activity exclusions. Insurers and brokers need to work together with insureds to ensure continuity of coverage and adequate risk management systems are in place.

By Chloe Fructus & John Howard