Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Congressional research reportSep 12, 2008

Ask Donna

What actually matters in this document.

Text

Vulnerability of Concentrated Critical

Infrastructure: Background and Policy

Options

name redacted

Specialist in Energy and Infrastructure Policy

September 12, 2008

Congressional Research Service

7-....

www.crs.gov

RL33206

CRS Report for Congress

Prepared for Members and Committees of Congress

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Summary

“Critical infrastructure” consists of systems and assets so vital to the United States that their

incapacity would harm the nation’s physical security, economic security, or public health. Critical

infrastructure is often geographically concentrated, so it may be distinctly vulnerable to events

like natural disasters, epidemics, and certain kinds of terrorist attacks. Disruption of concentrated

infrastructure could have greatly disproportionate effects, with costs potentially running into

billions of dollars and spreading far beyond the immediate area of disturbance. Hurricane Katrina

in 2005, and Hurricane Ivan in 2008, have demonstrated this kind of geographic vulnerability by

disrupting much of the U.S. energy and chemical sectors.

Congress has been examining federal policies related to the geographic concentration and

vulnerability of critical infrastructure. In the 109th Congress, the Energy Policy Act of 2005 (P.L.

109-58) facilitated the construction of new liquefied natural gas import terminals in diverse ports.

Provisions in the Pipeline Safety Improvement Act of 2006 (P.L. 109-468) require studies to

identify geographic areas in the United States where unplanned loss of oil pipeline facilities may

cause oil shortages or price disruptions. The 110th Congress is considering additional policies

which may affect critical infrastructure concentration. Prominent among these are legislative

proposals such as H.R. 6566, H.R. 6709, S. 3202, and S. 3126, which would lift federal

moratoriums on, or otherwise encourage, offshore oil and natural gas development outside the

western Gulf of Mexico.

Geographic concentrations of U.S. critical infrastructure typically have developed through some

combination of market influences, including resource location, agglomeration economies, scale

economies, community preferences, and capital efficiency. Congress and federal agencies also

have adopted policies affecting the capacity and location of critical infrastructure, including

prescriptive siting, economic incentives, environmental regulation, and economic regulation.

Some federal policies have been developed specifically to address perceived threats to critical

infrastructure. These influences often have been in place for decades, gradually driving critical

infrastructure to its geographic configuration today.

Some analysts may argue that little government intervention is necessary to alleviate geographic

vulnerabilities of critical infrastructure because the private sector will adjust its practices out of its

own financial interest. However, if Congress concludes that federal intervention is needed, it may

employ a number of policy options to encourage geographic dispersion (including eliminating

policies that encourage concentration ), ensure survivability, or ensure that effective infrastructure

recovery capabilities are in place to mitigate impacts of concentrated infrastructure disruption.

Addressing geographic vulnerabilities may call for a combination of options. Congress may also

consider whether other legislative proposals with the potential to affect critical infrastructure

development—directly or indirectly—are likely to relieve or exacerbate geographic vulnerability.

The economic efficiency of public critical infrastructure and the efficient use of federal funds for

infrastructure development may also be important considerations.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Contents

Introduction ................................................................................................................................1

Scope and Limitations...........................................................................................................2

Geographic Infrastructure Concentration .....................................................................................2

What is Critical Infrastructure?..............................................................................................2

What is Geographic Concentration? ......................................................................................3

Geographic Hazards..............................................................................................................5

Meteorological Events ....................................................................................................5

Earthquakes and Tsunamis ..............................................................................................5

Infectious Disease ...........................................................................................................6

Terrorism ........................................................................................................................7

Frequency of Major Geographic Events ................................................................................7

Market Influences on Geographic Concentration ...................................................................8

Resource Location ..........................................................................................................8

Agglomeration Economies ..............................................................................................9

Scale Economies ........................................................................................................... 10

Community Preferences ................................................................................................ 10

Capital Efficiency ......................................................................................................... 11

Federal Policies and Infrastructure Concentration...................................................................... 11

Prescriptive Siting............................................................................................................... 12

Economic Incentives ........................................................................................................... 12

Environmental Regulation................................................................................................... 13

Economic Regulation .......................................................................................................... 14

Policy Options to Reduce Infrastructure Vulnerability ............................................................... 15

Eliminating Policies Encouraging Concentration ................................................................. 15

Encouraging Geographic Dispersion ................................................................................... 16

Ensuring Infrastructure Survivability................................................................................... 17

Ensuring Infrastructure Recovery Capabilities..................................................................... 18

Conclusions .............................................................................................................................. 18

Figures

Figure 1. Oil and Gas Pipelines in the Continental United States..................................................9

Tables

Table 1. Selected U.S. Disasters Since 1990 with Costs Exceeding $1 Billion..............................7

Contacts

Author Contact Information ...................................................................................................... 19

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Introduction

Critical infrastructure is so vital to the United States that its incapacity would harm the nation’s

physical security, economic security, or public health. The federal government has a key role in

helping protect the nation’s critical infrastructure from all types of hazards through programs of

mitigation, preparedness, response, and recovery. Accordingly, Congress has a strong interest in

the vulnerability of critical infrastructure to natural hazards, accidents, or terrorism. Since

September 11, 2001, legislators, government agencies, and industry increasingly have been

focused on the sources of infrastructure vulnerability and potential measures to address those

vulnerabilities through operational changes and capital investment.

When infrastructure is physically concentrated in a limited geographic area it may be particularly

vulnerable to geographic hazards such as natural disasters, epidemics, and certain kinds of

terrorist attacks. Whereas a typical geographic disruption is often expected to affect infrastructure

in proportion to the size of an affected region, a disruption of concentrated infrastructure could

have greatly disproportionate—and national—effects. A catastrophic ice storm in metropolitan

Chicago, for example, would undoubtedly create local emergencies, but could also temporarily

disrupt rail transportation and associated commerce throughout the country because Chicago is a

major railway hub. Extended closure of the port of Long Beach, the largest port in the nation,

would greatly harm California’s economy, but could also disrupt vital supply chains for a number

of national industries.1 The social and economic impacts of geographic disasters are often difficult

to quantify, but their costs can quickly run into the billions and can spread far beyond the area of

the event itself. In 2005, Hurricanes Katrina and Rita demonstrated this kind of geographic

impact by disrupting a substantial part of the national U.S. energy and chemical sectors, both

heavily concentrated in the Gulf of Mexico. In 2008, Hurricanes Gustav and Ike have caused

similar disruptions, renewing concerns about geographic vulnerability.

As the nation’s responses to recent natural disasters continue, and as its homeland security

activities evolve, Congress has been examining federal policies related to the geographic

concentration and vulnerability of critical infrastructure. For example, in the 109th Congress, the

Energy Policy Act of 2005 (P.L. 109-58) facilitated the construction of new liquefied natural gas

import terminals in diverse ports by granting the Federal Energy Regulatory Commission

exclusive siting approval authority (Section 311). Provisions in the Pipeline Safety Improvement

Act of 2006 (P.L. 109-468) require periodic studies to identify geographic areas in the United

States where unplanned loss of oil pipeline facilities may cause oil shortages or price disruptions

(Sec. 8(a)). The 110th Congress is overseeing implementation of these measures and considering

additional policies which may affect critical infrastructure concentration. Prominent among these

are legislative proposals such as H.R. 6566, H.R. 6709, S. 3202, and S. 3126, which would lift

federal moratoriums on, or otherwise encourage, offshore oil and natural gas development outside

the western Gulf of Mexico. 2

This report provides an overview of geographic concentration and related vulnerability among

critical infrastructures in the United States. The report illustrates the nature of such geographic

Hall, P.V. “‘We’d Have to Sink the Ships’: Impact Studies and the 2002 West Coast Port Lockout.” Economic

Development Quarterly, vol. 18, no. 4. November 2004, pp. 354-367.

For further discussions, see CRS Report RL33404, Offshore Oil and Gas Development: Legal Framework, by (name

redacted), and CRS Report RL33493,

Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue Sharing, by

(name redacted).

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

concentration and how it may expose infrastructures to catastrophic failure due to geographic

hazards. It identifies several long-term forces which have contributed to infrastructure

concentration. These forces include resource location, agglomeration economies, scale

economies, community preferences, and capital efficiency. It reviews several ways in which the

federal government has also influenced critical infrastructure, such as prescriptive siting,

economic incentives, environmental regulation, and economic regulation. The report concludes

with options to address geographic vulnerability in the context of current federal infrastructure

policy.

Scope and Limitations

This report focuses on “nationally” critical infrastructure and related federal policies. While many

of the infrastructure and policy issues addressed in this report may also apply at the state and

local levels, the report discusses them only in the context of federal activities. This report also

discusses a number of specific geographic hazards to critical infrastructure in the context of a

broader federal policy discussion. The report does not attempt to quantify the likelihood of any

particular hazard occurring in any particular location, or the degree of vulnerability of any

particular infrastructure concentration to geographic hazards. Such projections are available

elsewhere3 and are beyond the scope of this analysis.

Geographic Infrastructure Concentration

What is Critical Infrastructure?

Twenty years ago, “infrastructure” was defined primarily with respect to the adequacy of the

nation’s public works.In the mid-1990’s, however, the growing threat of international terrorism

led policy makers to reconsider the definition of “infrastructure” in the context of homeland

security. Successive federal government reports, laws, and executive orders have refined, and

generally expanded, the number of infrastructure sectors and the types of assets considered to be

“critical” for purposes of homeland security. The USA PATRIOT Act of 2001 (P.L. 107-56

Section 1016e) contains the federal government’s most recent definition of “critical

infrastructure.” According to the act, “critical infrastructure” is

systems and assets, whether physical or virtual, so vital to the United States that the

incapacity or destruction of such systems and assets would have a debilitating impact on

security, national economic security, national public health or safety, or any combination of

those matters (Section 1016e).

This definition was adopted, by reference, in the Homeland Security Act of 2002 (P.L. 107-296,

Section 2.4) establishing the Department of Homeland Security (DHS). The Bush

Administration’s 2006 National Infrastructure Protection Plan (NIPP) contains a detailed list of

critical infrastructures and assets of national importance, as follows:

See, for example: Risk Management Solutions, Inc., “Catastrophic Risk in the United States,” cited in U.S.

Government Accountability Office, Natural Disasters: Public Policy Options for Changing the Federal Role in

Natural Catastrophe Insurance, GAO-08-7, November 2007, p. 9.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

•

Agriculture and food

•

Emergency services

•

Banking and finance

•

Energy (except nuclear)

•

Chemicals

•

Government facilities

•

Commercial facilities

•

Information technology

•

Commercial nuclear

•

National

monuments/icons

•

Critical manufacturing

•

Dams

•

Postal and shipping

•

Defense industrial base

•

Public health and

healthcare

•

Drinking water/water

treatment

•

Telecommunications

•

Transportation

As the list suggests and the NIPP acknowledges explicitly, “The majority of the [critical

infrastructure/key resource]-related assets, systems, and networks are owned and operated by the

private sector.”5 The list may continue to evolve as economic changes or geopolitical

developments influence homeland security policy.

What is Geographic Concentration?

This report defines “geographic concentration” of critical infrastructure as the physical location of

critical assets in sufficient proximity to each other that they are vulnerable to disruption by the

same, or successive, regional events. To be of national significance, the collection of concentrated

assets may account for a significant fraction of the nation’s total infrastructure capacity in a given

sector or subsector. Alternatively, the collection of regional assets could make up an infrastructure

hub, accounting for a nationally significant fraction of commodity or service flows through that

infrastructure sector or subsector. The threshold above which such assets could be considered

“nationally” concentrated would depend upon the type of impact resulting from a prolonged

disruption. From strictly a market perspective, for example, some policy makers have suggested

that a change in energy infrastructure capacity of as little as 10% to 15% could have an

exaggerated effect on related market prices. 6 The corporate merger guidelines used by the United

States, Canada, and the European Union variously assume that a company must have a 25% to

35% market share to exercise market power, and so uncompetitively influence market prices or

supplies. 7 Although the loss of critical infrastructure would have effects beyond market price,

other possible metrics of concentration (e.g., environmental) offer little additional clarity on

concentration thresholds.

“Critical manufacturing” was subsequently added to this list by the DHS. See Department of Homeland Security,

“Designation of the National Infrastructure Protection Plan Critical Manufacturing Sector,” Docket No. DHS-20080038, Federal Register, April 30, 2008 (Volume 73, Number 84), pp. 23476-23478.

NIPP. p. 10.

Hon. Joe Barton, Remarks at the House Energy and Commerce Committee Hearing on Recovering from Katrina,

September 7, 2005.

Facey, B.A. and H. Huser, “A Comparison of Horizontal Merger Guidelines in Canada, the European Union, and the

United States,” Antitrust, fall 2004, pp. 43-50.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Many of the critical infrastructure sectors identified in the NIPP exhibit some degree of

geographic concentration, as illustrated by the following examples.

•

Chemicals (chlorine)—Over 38% of U.S. chlorine production is located in

coastal Louisiana.8

•

Transportation (marine cargo)—Over 33% of U.S. waterborne container

shipments pass through the ports of Long Beach and Los Angeles in southern

California.9

•

Transportation (rail)—Over 37% of U.S. freight railcars pass through Illinois,

primarily around Chicago. Over 27% of freight railcars pass through Missouri,

primarily around St. Louis.10

•

Agriculture and food (livestock)—Approximately 28% of U.S. hog inventories

are located in Iowa. Another 15% of hog inventories are located in the eastern

counties of North Carolina.11

•

Public health and health care (pharmaceuticals)—Approximately 25% of U.S.

pharmaceuticals are manufactured in Puerto Rico, primarily in the San Juan

metropolitan area.12

•

Energy (refining)—Approximately 43% of total U.S. oil refining capacity is

clustered along the Texas and Louisiana coasts.13

•

Banking and finance (securities market)—Approximately 39% of U.S. securities

and options (by market value) are traded on the floors of the New York and

American Stock Exchanges in lower Manhattan.14 Approximately 21% of U.S.

securities industry employees are located in New York City.15

•

Defense industrial base (shipyards)—Over 31% of U.S. naval shipbuilding and

repair capacity is in and around Norfolk, VA. 16

U.S. Census Bureau, Alkalies and Chlorine Manufacturing: 2002, Economic Census, Manufacturing Industry Series,

EC02-31I-325181 (RV), December 2004, Table 2, Table 6b.

Army Corps of Engineers, Waterborne Commerce Statistics Center (WCSC). “U.S. Waterborne Container Traffic by

Port/Waterway in 2006.” Last revised January 29, 2008. http://www.iwr.usace.army.mil/ndc/wcsc/by_portname06.htm.

Assoc. of American Railroads. “Rail Carloads Carried by State: 2006.” 2008. http://www.aar.org/PubCommon/

Documents/AboutTheIndustry/RRState_Rankings.pdf.

U.S. Department of Agriculture, National Agricultural Statistics Service (NASS), Quarterly Hogs and Pigs, June 27,

2008. p. 5.

U.S. Census Bureau, Pharmaceutical Preparation Manufacturing: 2002, Economic Census, Manufacturing Industry

Series. EC02-31I-325412 (RV), December 2004. Table 2; Puerto Rico Manufacturing. 2002 Economic Census of

Island Areas. IA02-00I-PRM (RV). October 2005. Table 1.

Energy Information Administration. Refinery Capacity 2008. June 20, 2008. Table 1. http://www.eia.doe.gov/

oil_gas/petroleum/data_publications/refinery_capacity_data/refcapacity.html.

U.S. Securities and Exchange Commission. “Select SEC and Market Data Fiscal 2006.” 2007. Table 12.

http://www.sec.gov/about/secstats2007.pdf.

Securities Industry Association (SIA). “Securities Industry Employment.” August 2008. p. 7. See

http://www.sifma.org/research/statistics/other/employment-NY-quarterly.pdf.

Colton Company. “Employment in the Major Shipbuilders.” August 14, 2006. http://www.shipbuildinghistory.com/

today/statistics/jobsbyyard.htm Capacity estimate based on 2004 major shipyard relative employment data.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

In addition to single infrastructure concentrations, some regions of the United States contain

concentrations of multiple critical infrastructures. As indicated in the examples above, coastal

Louisiana has concentrations of both refining and chemical production capacity. In addition to a

concentration of financial services, the metropolitan New York and New Jersey area contains a

concentration of U.S. port capacity (12% of container shipping) and airport capacity (8% of

airline passengers), among other critical infrastructure.17

Geographic Hazards

Where critical infrastructure is geographically concentrated, it may be distinctly vulnerable to a

range of geographic hazards, including natural or unnatural events. These events could have

varying potential for infrastructure disruption depending upon the type of event, its location, and

the infrastructure sectors present in that location. What such events have in common is their

geographic scale. Among the geographic events posing the greatest hazard to U.S. critical

infrastructure concentrations are the following.

Meteorological Events

Major meteorological events, such as hurricanes, tropical storms, floods, and ice storms, have the

potential to physically disrupt critical infrastructures or displace related critical workers in large

geographic areas. For example, the damaging effects of hurricanes Katrina and Rita (and

associated flooding) on energy and chemicals infrastructure in the Gulf of Mexico have been

widely reported. In 1998, a major ice storm in Quebec, Canada, and the northeastern United

States caused widespread, persistent power and communications blackouts, disrupted other

power-dependent services, and prevented critical workers from traveling to their jobs.18

Earthquakes and Tsunamis

Earthquakes have the potential to damage concentrations of critical infrastructure in seismically

active regions of the United States, including the west coast, Alaska, and the central Mississippi

Valley. The 1994 earthquake in Northridge, CA, is an example of such seismic activity in a region

with concentrated critical infrastructure. The Northridge earthquake had limited impact on the

region’s major ports, airports, and energy infrastructure, but it did cause significant damage to

bridges and highways vital for commercial trucking and public transportation.19 A 1995

earthquake in Kobe, Japan was far more destructive to Japanese critical infrastructure. In addition

to highway damage, the earthquake heavily damaged the port of Kobe, Japan’s largest container

shipping port, as well as chemical manufacturers, steel manufacturers, railroads, and utilities in

the area. Repairs to the port took almost a year to complete. 20

WCSC. 2008; U.S. Department of Transportation, Bureau of Transportation Statistics (BTS). Airport Activity

Statistics (AAS) 2000. BTS01-05. 2002. Table 3.

Environmental Index. “The Storm of the Century in Canada, January 1998.” 2000. Some 700,000 Canadians were

without power for over two weeks; U.S. Army Cold Regions Research and Engineering Laboratory. “An Evaluation of

the Severity of the January 1998 Ice Storm in Northern New England: Report for FEMA Region 1.” April 1998.

M.G. Boarnet, “Business Losses, Transportation Damage, and the Northridge Earthquake.” Journal of

Transportation and Statistics, vol. 1, no. 2, May 1998.

Risk Management Solutions, Inc. 1995 Kobe Earthquake 10-year Retrospective. Newark, CA. January 2005. p. 5.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Coastal infrastructure concentrations are also potentially vulnerable to disruption by tsunamis.

The infrastructure damage to Sri Lanka, India, Indonesia, and other Asian nations from the 2004

tsunami in the Indian Ocean was extensive. Experts have testified before Congress that the United

States is also potentially vulnerable to a major tsunami. 21 Depending upon its magnitude, such an

event could disrupt ports and other critical transportation infrastructure.22 According to

California’s Seismic Safety Commission, for example, a major tsunami in southern California

could close the ports of Long Beach and Los Angeles for two months and cause $60 billion in

economic losses. 23

Infectious Disease

Epidemics and pandemics of infectious diseases such as Severe Acute Respiratory Syndrome

(SARS) and avian influenza (bird flu) have the potential to disrupt critical infrastructure by

infecting critical workers or restricting their movement. The Bush Administration’s National

Strategy for Pandemic Influenza states that “while a pandemic will not damage power lines,

banks or computer networks, it will ultimately threaten all critical infrastructure by removing

essential personnel from the workplace for weeks or months.”24 An outbreak of infectious disease

may sicken critical workers or force them into quarantine. It may also restrict their access to

critical facilities where the disease may be present. As one federal government report states,

during such an event “operations become disrupted, exposed people and facilities undergo

extensive testing ... and buildings and equipment require decontamination.”25

The 2003 SARS outbreak in Toronto demonstrated the vulnerability of critical health and

transportation infrastructure in Canada to such an infectious disease. The World Health

Organization, the U.S. Department of Health and Human Services, and other health organizations

have since expressed concern about the likelihood of a bird flu pandemic with more serious

potential consequences than SARS.26 In the event of a bird flu or similar outbreak in a particular

geography, some analysts have predicted up to 40% absenteeism among workers during the peak

weeks of a regional outbreak. 27

Concentrations of livestock may be similarly vulnerable to infectious disease, with the potential

to catastrophically affect the nation’s food supply. As one expert has testified before Congress,

“animal diseases can be quickly spread to affect large numbers of herds over wide geographic

areas. This reflects the intensive and concentrated nature of modern farming practices in the

C. Groat, Director, United States Geological Survey (USGS). Testimony before the House Science Committee

hearing, Tsunamis: Is the United States Prepared?, January 26, 2005.

J. Borrero, S. Cho, J.E. Moore II, H.W. Richardson, and C. Synolakis, “Could it Happen Here?,” Civil Engineering.

April 2005. pp. 54-65.

California Seismic Safety Commission. The Tsunami Threat to California. CSSC 05-03. December 2005. p. 6.

Office of the President, Homeland Security Council. National Strategy for Pandemic Influenza. November 1, 2005.

p. 2.

A. Brecher, U.S. Department of Transportation (DOT), Volpe National Transportation Systems Center. “Cleanup and

Recovery of Passenger Transportation Facilities after a Bio-attack.” Workshop resource paper. March 30, 2004.

For further background see CRS Report RL34190, Pandemic Influenza: An Analysis of State Preparedness and

Response Plans, by (name redacted) and (name redacted); World Health Organization (WHO).Avian Influenza:

Assessing the Pandemic Threat. WHO/CDS/2005.29. January 2005.

U.S. Department of Health and Human Services. “Pandemic Influenza Planning.” Internet page. December 5. 2005.

See http://pandemicflu.gov/plan/pandplan.html.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

US.”28 Foot and mouth disease (FMD), in particular, has the potential to infect regionally

concentrated stocks of hogs, cattle, and sheep should they be exposed. A 2002 General

Accounting Office report found that an FMD outbreak could cost the U.S. economy up to $24

billion dollars and could have “significant social impacts, such as enormous psychological

damage, especially on families and localities directly affected by the outbreak.”29

Terrorism

Certain types of terrorist attacks could be of sufficient scale to pose a geographic threat to critical

infrastructure. Nuclear bombs, radiological weapons (“dirty” bombs), or electromagnetic pulse

(EMP) devices could damage or render inaccessible concentrated critical assets. Cyber-attacks on

regional computer systems also have the potential to damage or disrupt computer networks’

ability to control critical infrastructure.30 Biological attacks could have impacts similar to those of

epidemics, although they could be more specifically targeted at particular regions. 31

Frequency of Major Geographic Events

Taken individually, the types of disasters discussed above occur only rarely in a specific location.

Taken collectively, however, such events occur often enough to warrant dedicated policy

attention. As Table 1 shows, reviewing only the past 15 years, major disasters have occurred in

North America almost annually. Not all of these events have impacted regions of concentrated

critical infrastructure, nor have they all significantly affected such infrastructure where it has been

present. Nonetheless, the cost estimates for these events indicate their disruptive power.

Table 1. Selected U.S. Disasters Since 1990 with Costs Exceeding $1 Billion

Year

Event

Location

Costs

($ billions)

2006

Tornadoes

Midwest/Ohio Valley

1.1

2005

Hurricanes (Category 4, 3, 1)

Central Gulf of Mexico, Florida

113.8

2004

Hurricanes (Category 2, 3, 4)

Florida, Alabama

45.0

2003

Hurricane (Category 3)

Mid-Atlantic

3.4

2003

Epidemic (SARS)

Ontario

0.8a

2001

Terror attacks

New York, Virginia, Pennsylvania

38.0

2001

Tropical storm

Texas, Southeast U.S.

5.0

1998

Ice storm

Quebec, Northeast U.S.

1.4b

1997

Flood/Tornados

Ohio/Mississippi Valley

1.0

P. Chalk, RAND Corp. “The Bio-Terrorist Threat to Agricultural Livestock and Produce.” Testimony before the

Senate Government Affairs Committee. November 19, 2003.

General Accounting Office. Foot and Mouth Disease. GAO-02-808. July 2002. pp. 20-21.

Weiss, J. “CyberWar.” Frontline. Public Broadcasting System. Television interview. April 24, 2003.

For further discussion see Senate Judiciary Committee, Subcommittee on Terrorism, Technology and Homeland

Security hearing, Lessons Learned from Hurricane Katrina in Regard to Emergency Preparedness for a Terrorist

Attack, October 26, 2005.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Year

Event

Location

Costs

($ billions)

1996

Hurricane (Category 3)

North Carolina

3.2

1995

Flood / Tornados / Hail

South Central U.S.

5.5

1994

Ice storm

Southeast U.S.

3.0

1994

Earthquake

California

40.0

1993

Flood

Midwest

21.0

1992

Hurricane (Category 5)

Florida, Louisiana

26.5

Sources: National Hurricane Center. “The Thirty Costliest Mainland United States Tropical Cyclones 19002005.” Dec. 2007. http://www.aoml.noaa.gov/hrd/tcfaq/costliesttable.html; National Climatic Data Center. “19802007 Billion Dollar U.S. Weather Disasters.” 2007. http://lwf.ncdc.noaa.gov/img/reports/billion/disasters2007.pdf;

Dixon, L. and Stern, R.K., RAND Corp. “Compensation for Losses from the 9/11 Attacks.” Nov. 8, 2004;

Eyesenbach, G. “SARS and Population Health Technology.” Journal of Medical Internet Research, vol. 5, no. 2,

2005;R.T. Eguchi, J.D. Goltz, C.E. Taylor, S.E. Chang, P. J. Flores, L. A. Johnson, H. A. Seligson, and N. C. Blais,

“Direct Economic Losses in the Northridge Earthquake: A Three-Year Post-Event Perspective,” Earthquake

Spectra, vol. 14, no. 2, May 1998, pp. 245-264.

Includes only direct costs for extra protective gear, clinics, isolation rooms, and lost wages for quarantined

health-care workers. Cost likely exceeds $1 billion with business losses included.

Excludes Canadian costs.

Market Influences on Geographic Concentration

Although attention to the geographic concentration of U.S. critical infrastructure has increased in

the wake of recent terrorist attacks and natural disasters, such geographic concentrations are not

new. They have developed for multiple reasons—typically some combination of market

influences, including resource location, agglomeration economies, scale economies, community

preferences, and capital efficiency. These influences often have been in place for decades,

gradually driving critical infrastructure development to its geographic configuration today.

Resource Location

The location of certain critical infrastructures is driven by the location of related natural resources

or, in some cases, natural terrain. Such influences are particularly apparent in energy, agriculture,

and transportation. United States oil and natural gas basins, for example, are located in particular

regions of the country, including the Gulf of Mexico, the Rockies, and Appalachia. These

locations are generally far from Northeastern urban centers which are the primary locations of oil

and gas demand. Consequently, large oil and gas pipelines tend to be concentrated between these

widely separated resource regions and the Northeast, as shown in Figure 1. Likewise, production

of phosphoric acid, a key component of agricultural fertilizer, is concentrated in Florida, which

has the nation’s largest deposits of phosphoric rock. 32 Agricultural production is also driven by

geography, since particular crops require particular climates, weather conditions, and types of

soil. Terrain may also be a driver of infrastructure concentration. There are relatively few natural

harbors suitable as deepwater ports in the western United States compared to the eastern part of

Environmental Protection Agency (EPA). “About Phosphogypsum.” July 31, 2008. http://www.epa.gov/rpdweb00/

neshaps/subpartr/about.html.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

the country. Consequently, the ports that exist, such as Long Beach, have become very heavily

utilized. In these cases, and others, the concentration of a natural resource drives the

concentration of infrastructure exploiting that resource.

Figure 1. Oil and Gas Pipelines in the Continental United States

Source: Energy Information Administration.

Agglomeration Economies

Where resource location and terrain are not constraints, concentrations of critical infrastructure

may emerge due to economic factors collectively referred to as “agglomeration economies.”

Broadly speaking, it is clear that [industry] concentrations form and survive because of some

form of agglomeration economies, in which spatial concentration itself creates the favorable

economic environment that supports further or continued concentration.33

For critical infrastructure, such agglomeration economies may include the availability of

specialized knowledge, the availability of skilled workers, access to production inputs, and access

to large markets for the goods and services produced. 34 The concentration of semiconductor

manufacturing in Silicon Valley illustrates such economies. Silicon Valley emerged near major

research institutions (e.g., Lawrence Livermore National Laboratory), with the ready availability

of highly skilled graduates from leading research universities (e.g., U.C. Berkeley, Stanford

University), and with access to both product suppliers, computer manufacturers (e.g., Apple

Computer), and software companies. Agglomeration economies have also been demonstrated in

food manufacturing, and may similarly influence other critical infrastructure sectors such as

financial services, chemicals manufacturing, and telecommunications.35

M. Fujita, P. Krugman, and A. Venables, The Spatial Economy. MIT Press. 1999. p. 3. (Hereafter cited as Fajita, et

al., The Spatial Economy.)

Fujita, et al., The Spatial Economy, p. 5.

J.P. Cohen, and C.J.M. Paul, “Agglomeration Economies and Industry Location Decisions: The Impacts of Vertical

and Horizontal Spillovers.” Working Paper 01-010. University of California, Davis, U.S. Department of Agricultural

and Resource Economics. October 2001.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Scale Economies

Critical infrastructure may become geographically concentrated in pursuit of “scale economies.”

Scale economies are found in industries where unit costs fall as the scale of operations

increases. This phenomenon was first studied in pipeline industries ... when it was observed

that the amount of material required to make a pipe of a given diameter increased only twothirds as quickly as the carrying capacity of the pipe. This observation led to larger pipes

having lower unit costs.36

In addition to pipelines, researchers have identified scale economies across many critical

infrastructure sectors.37 The size of new chemical plants, for example, increased by a factor of

five between the late 1950s and early 1980s, in part due to scale economies.38 Some analysts

likewise suggest that the concentration of shipping container traffic among several U.S.

“megaports” is partly due to economies of scale in warehousing and terminal operations.39

Because scale economies tend to drive an increase in size of individual facilities, they may also

geographically concentrate regional infrastructure capacity where multiple facilities are located in

the same region.

Community Preferences

Community preferences have sometimes led to concentrations of critical infrastructure by

preventing or inviting the development of new facilities in particular new locations. Such

preferences have affected, for example, ongoing efforts by energy developers to site new

liquefied natural gas (LNG) import terminals. Since 2000, developers have proposed the

construction of over 70 new LNG terminals in U.S. ports or U.S. waters, many near major natural

gas markets in California and the Northeast. But most near-to-market terminal proposals have

struggled for approval due to community concerns about LNG safety, effects on local commerce,

and other potential negative impacts. Due primarily to local community opposition, LNG

developers have withdrawn terminal proposals in Alabama, California, Maine, Massachusetts,

North Carolina, and Florida. Other terminal proposals in Rhode Island, New York, and New

Jersey are facing stiff community opposition. In some cases state and local agencies also have

been at odds with federal agencies over LNG terminal siting jurisdiction. Communities in only a

few states, notably Louisiana and Texas, have encouraged the siting of new LNG facilities. As a

result, most new LNG terminals approved by federal agencies are located in the Gulf of Mexico,

where natural gas infrastructure is already heavily concentrated.40 Similar siting preferences have

P.W. Bauer, “Are We in a Productivity Boom? Evidence from Multifactor Productivity Growth.” Economic

Commentary. Federal Reserve Bank of Cleveland. October 15, 1999.

L.R. Christensen, and W.H. Greene, “Economies of Scale in U.S. Electric Power Generation.” Journal of Political

Economy, vol. 84, no. 4, 1976, p. 655.

M.B. Lieberman, “Market Growth, Economies of Scale, and Plant Size in the Chemical Processing Industries,”

Journal of Industrial Economics, vol. 36, no. 2, 1987, pp. 175-191.

National Research Council. Making the Nation Safer: The Role of Science and Technology in Countering Terrorism.

National Academies Press. 2002. p. 216.

For further discussion of LNG siting see CRS Report RL32205, Liquefied Natural Gas (LNG) Import Terminals:

Siting, Safety, and Regulation.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

faced other types of critical infrastructure and industries, including electric power,

telecommunications, and transportation.41

Capital Efficiency

Capital efficiency seeks to maximize financial returns on capital investment. Since most U.S.

critical infrastructure is in the private sector, capital efficiency has long influenced how and

where private companies have invested in infrastructure capacity.42 Attention to capital efficiency

sharply increased in the 1990s, however, as financial markets grew dissatisfied with other

measures of company performance such as simple revenue growth. 43 This attention, in turn, led a

range of capital-intensive infrastructure companies, such as electric utilities, telecommunications

providers, pipelines, and other industrial companies, to sharply reduce annual capital

requirements from historical levels. 44 Economic deregulation of the energy, telecommunications,

and transportation industries, among others, accelerated this trend.

In some cases companies reduced capital requirements by cutting “excess” infrastructure

capacity—reducing reserve capacity in capital equipment or reducing inventories of production

supplies (“just-in-time” inventory). For example, power generation capacity margins for the U.S.

electric utility industry as a whole fell by almost 40% between 1992 and 2000.45 There has been a

similar reduction in excess capacity among other critical infrastructures, many of which now

operate near or at capacity. Oil refineries, for example, have seen capacity utilization rise from

below 77% in 1985 to 89% in 2005.46 While such a reduction in reserve capacity has not, itself,

led to geographic infrastructure concentration, it has greatly increased the sensitivity of

infrastructures to the disruption of concentrated capacity.

Federal Policies and Infrastructure Concentration

Although market forces have been the primary influence on critical infrastructure development,

especially in the private sector, Congress and federal agencies historically have, from time to

time, adopted policies intended to affect the capacity and location of critical infrastructure in the

national interest. Although these policies often have been motivated by the desire to promote

specific social objectives (e.g., economic development, environmental protection, infrastructure

reliability) they have sometimes also encouraged or discouraged the geographic concentration of

critical infrastructures. Examples of these policies follow.

D. Laws, and L. Susskind, “Changing Perspectives on the Facility Siting Processes.” Maine Policy Review.

December 1991. pp. 29-44.

General Accounting Office (GAO). Challenges for Critical Infrastructure Protection. GAO-03-233. February 28,

2003. p. 1. This report states that over 80% of critical infrastructure is private.

See, for example, S.R. Rajan, “Turning Capital to Wealth: A Ranking of U.S. Utilities.” Public Utilities Fortnightly.

December 1999.

M. Singer, and K. Turnipseed, “Curing Capital Addiction.” McKinsey Quarterly. 1993. no. 4. pp. 69-77.

T. Karier, “Keeping the Lights On: A Banking Industry Model to Avoid Shortages.” Public Utilities Fortnightly. July

1, 2002.

Energy Information Administration. “Refinery Utilization and Capacity.” July 28, 2008. Internet database.

http://tonto.eia.doe.gov/dnav/pet/pet_pnp_unc_dcu_nus_a.htm.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Prescriptive Siting

The federal government has prescriptively sited, constructed, and operated federally owned or

operated critical infrastructure. Such infrastructure includes transportation facilities, military

bases, postal facilities, federal energy facilities, and national laboratories. In some cases, such

prescriptive siting has led to geographic concentration of critical infrastructure. For example, the

federal government sited and constructed the Panama Canal in the early 1900s, encouraging a

concentration of military and commercial shipping through the new waterway which persists

today. (The canal carried over a third of U.S. grain exports in 2006.)47 In the Pacific Northwest,

dams constructed or operated by federal agencies on the Columbia River system account for 28%

of U.S. hydroelectric generation capacity. 48 In other cases, prescriptive federal siting has

dispersed critical infrastructure. In the early 1940s, for example, the federal government financed

and sited a major steel plant in Utah, far from existing U.S. steel plants and steel markets. A key

reason for siting the plant (viewed as critical for shipbuilding during World War II) in Utah was

“as a precaution against steel shortages in the West in case of a Pacific coast invasion or closure

of the Panama Canal.”49 A more current example is the U.S. Postal Service, which routes no more

than 1.3% of all mail through any single processing and distribution center.50

Although the federal government prescriptively sites its own infrastructure, it is difficult to find

examples of federal prescriptive siting of private sector infrastructure. One way the government

has done so, however, is through its control of federal lands and other federal assets necessary for

infrastructure development. For example, the Trans-Alaska Pipeline Authorization Act of 1973

(P.L. 93-153) directed the Secretary of the Interior to authorize a right-of-way for construction of

the Trans-Alaska Pipelines System (TAPS) through federal lands in Alaska. The construction of

TAPS physically diversified U.S. oil supplies, although it initiated a new geographic

concentration of critical infrastructure in Alaska. TAPS transports nearly 17% of United States

domestic oil production. 51 More recently, the Energy Policy Act of 2005 (P.L. 109-58) directs

federal agencies to designate “energy corridors” on federal lands in 11 western states for the

siting of new oil, gas, and hydrogen pipelines and electricity transmission facilities (Section 368).

While both the TAPS and energy corridor projects involve privately owned facilities, the location

of those facilities is established prescriptively by the federal government.

Economic Incentives

Economic incentives are another policy mechanism employed by the federal government to direct

private sector infrastructure siting. Such incentives are intended to encourage private developers

to build infrastructure that might otherwise not be built or to build infrastructure in a location

favored by government. While most federal incentive programs are not geographically targeted,

some are intended to affect infrastructure development in particular geographic areas. The

U.S. Army Corps of Engineers. Waterborne Commerce of the United States: Calendar Year 2006. Part 5—National

Summaries. July 2008. Table 2-1; Panama Canal Authority. “Commodity Movement through the Panama Canal over

Principal Trade Routes.” 2008. Available at http://www.pancanal.com/eng/maritime/statisti.html.

Energy Information Administration . Energy Information Administration. Electric Power Annual 2006. DOE/EIA0348(2006). October 22, 2007. Table 2.1; Federal Columbia River Power System. Federal Columbia River Power

System. August 2003. p. 9. http://www.bpa.gov/power/pg/fcrps_brochure_17x11.pdf.

A.K. Powell. “Geneva Steel Plant.” Utah History Encyclopedia. University of Utah Press. 1994.

U.S. Postal Service. Personal communication and non-public data. December 7, 2005.

Alyeska Pipeline Service Co. Internet page. Anchorage, AK. May 2008. http://www.alyeska-pipe.com/about.html.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

construction of the transcontinental railroad and telegraph is an historic example of such a policy.

Under the Pacific Railway Act of 1862, the Congress provided private companies with 30-year

bonds, federal land grants, and other incentives to construct a rail and telegraph line along a

specified route from Nebraska to the Pacific coast. The federal government continues to offer

such financial incentives for critical infrastructure projects today. For example, in 2004 Congress

passed the Alaska Natural Gas Pipeline Act (P.L. 108-324, Div. C) offering an $18 billion loan

guarantee, accelerated depreciation, and investment tax credits to private developers for the

construction of a new natural gas pipeline similar to the existing Trans-Alaska oil pipeline. In

both the railroad and the Alaska gas pipeline cases, Congress has viewed the new infrastructure as

critical for expanding and diversifying (geographically) the nation’s critical assets.

Environmental Regulation

Federal environmental laws, such as the Coastal Zone Management Act and the Clean Air Act,

also have influenced the geographic development of critical infrastructure. The Coastal Zone

Management Act of 1972 (CZMA, P.L. 92-583) was enacted to enable states to establish

coordinated coastal zone management programs balancing environmental protection with coastal

development. State coastal management plans implemented under the CZMA may affect the

geographic concentration of infrastructure by encouraging or discouraging the siting of coastal

infrastructure. Research has shown, for example, that one third of states with coastal management

plans under CZMA appear to have adopted policies seeking to confine the physical expansion of

ports to areas already committed to port and industrial uses.52 Energy industry representatives

have argued that state plans under CZMA have also been used to block the development of new

energy infrastructure in many parts of the country.53

The Clean Air Act of 1970 (CAA, P.L. 91-604) created a national program to mitigate the harmful

effects of air pollution by regulating pollution sources. Among other provisions, the CAA requires

that new facilities emitting certain air pollutants install best available control technology as

determined by the Environmental Protection Agency. New facilities being sited in counties not in

attainment of federal air quality standards may have more stringent—and potentially more

costly—emissions control requirements than facilities sited in counties that are in attainment of

those standards, depending upon a state determination of the lowest emission rate available and

the need to acquire emissions offsets. By affecting facility costs in this way, some analysts argue

that the CAA encourages the concentration of infrastructure in geographic “pollution havens,” or,

alternatively, encourages the dispersion of facilities away from existing infrastructure in polluted

regions. One empirical study in New York, for example, suggests that air quality regulations have

significantly affected the destination choices of relocating manufacturing plants.54 Because

facility siting decisions are complex, however, other empirical studies of CAA effects on siting

concentration, specifically, have been less conclusive. 55

M.J. Hershman, “Seaport Development and Coastal Management Programs: A National Overview.” Coastal

Management, vol. 27, 1999, pp. 271-290.

Argonne National Laboratory. Environmental Policy and Regulatory Constraints to Natural Gas Production.

ANL/EAD/04-1. December 2004. p. 25.

J.A. List, et al. “Effects of Air Quality Regulation on the Destination Choice of Relocating Plants.” Oxford Economic

Papers, vol. 55, no. 4, 2003, pp. 657-678.

T. Jeppesen, et al. “Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis.”

Journal of Regional Science, vol. 42, no. 1, 2002, pp. 19-49.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

While the environmental regulations under the CZMA and CAA apply generally to many regions

in the United States, some federal environmental policies have been directed at more specific

geographic areas. Congressional moratoria on oil and natural gas development in specific parts of

the outer continental shelf (due to concerns about local economic and environmental impacts) are

one example of such federal policy.56 Energy industry analysts have argued that the moratoria

have resulted in oil and gas infrastructure concentration in the central and western Gulf of

Mexico, where such development is permitted. This example notwithstanding, the federal

government does not appear to impose regional-level (as opposed to facility-level) environmental

restrictions frequently. 57

Economic Regulation

Economic regulation of critical infrastructure, or the lack thereof, by the federal government may

also influence infrastructure concentration. Under federal price regulation, the U.S. airlines

industry offered primarily direct, point-to-point service. After economic deregulation in 1978, the

airlines began offering far more indirect flights, routing air traffic through concentrated “hub”

airports—a largely unanticipated consequence of inter-carrier competition.58 Federal deregulation

of banking led to a consolidation of the banking sector, with ever-larger banks concentrating

critical operations in centralized administration facilities to capture economies of scale. 59

Limited federal regulation does not necessarily lead to infrastructure concentration, however,

especially if state or local agencies have regulatory authority. Under the Federal Power Act of

1935 (FPA), for example, retail electricity sales and generation investments of investor-owned

electric utilities are regulated by the states. State regulators have historically required utilities to

meet state electric generation needs by constructing in-state plants, or by jointly constructing

plants with neighboring utilities. Consequently, privately-owned electric power plants have been

geographically dispersed among the 50 states. The largest shares of U.S. generating capacity in

individual states are 10% in Texas and 6% in California.60 By contrast, the federally owned

Tennessee Valley Authority (TVA) had plans in the 1960s to construct 17 nuclear power reactors

at seven sites.61 Although TVA only completed six reactors due to changes in the energy market

and nuclear safety regulation, its original plans would have created a nationally significant

concentration of nuclear generating capacity within TVA’s territory. It is interesting to note that

the recent restructuring of the electric utility industry, which exempts new generation plants from

state economic regulation, appears to be encouraging the geographic concentration of new

generating plants near certain transmission corridors because plant developers are no longer

constrained by state regulators in their site selection.

For further discussion see CRS Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and

Revenue Sharing, by (name redacted).

Environmental Law Institute, Institutional Controls in Use. Washington, D.C. September 1995. p. 14.

G. Gowrisankaran, “Competition and Regulation in the Airline Industry.” FRBSF Economic Letter. No 2002-01.

Federal Reserve Bank of San Francisco. January 18, 2002.

S.J. Pilloff, Bank Merger Activity in the United States, 1994-2003. Board of Governors of the Federal Reserve

System. Staff Study 176. May 2004.

Energy Information Administration. Electric Power Annual 2006. DOE/EIA-0348(2006). October 22, 2007. Figure

2.1. p. 23.

McCullough, Jr, G.L., Chairman, Tennessee Valley Authority. Testimony before the Senate Energy and Natural

Resources Committee, Energy Subcommittee. March 4, 2004.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

Policy Options to Reduce Infrastructure

Vulnerability

Since helping to reduce the overall vulnerability of critical infrastructure is an objective of the

federal government, it is useful to outline what options, if any, may be considered to reduce

vulnerabilities and potential national consequences arising specifically from the geographic

concentration of such infrastructure.

Some analysts may argue that little government intervention in infrastructure concentration is

necessary because the private sector will appropriately adjust its infrastructure practices out of its

own financial interest. Catastrophic insurance premiums, for example, or internal corporate risk

management programs, may influence corporate practices in a way that reduces vulnerabilities

and associated risk to future profits by reducing the geographic vulnerability of private

infrastructure. As the National Strategy for the Physical Protection of Critical Infrastructures and

Key Assets states,

Customarily, private sector firms prudently engage in risk management planning and invest

in security as a necessary function of business operations and customer confidence....

Consequently, private sector owners and operators should reassess and adjust their planning,

assurance, and investment programs to better accommodate the increased risk....62

Holders of such a view would assert that the socially optimal geographic distribution of critical

infrastructure, balancing economic efficiency with geographic risk, is best left to the market

forces outlined earlier in this report.

Other analysts have argued that the private sector does not properly account for the full social

costs of critical infrastructure failure, or that individual companies cannot independently and

significantly influence geographic concentration in a critical sector.63 Holders of this view would

see a definite and active role for the federal government in alleviating geographic vulnerability of

critical infrastructure in addition to the market-driven measures taken by the private sector on its

own. If Congress concludes that federal intervention is appropriate, it has several broad policy

options for doing so.

Eliminating Policies Encouraging Concentration

One way Congress may alleviate geographic concentration and associated vulnerability is to

eliminate existing policies that encourage such concentration. As the previous discussion has

shown, some federal policies may increase concentration prescriptively. Others, especially certain

economic and environmental policies, may implicitly or unintentionally encourage geographic

concentration. Without such government influence, market forces may drive developers to less

geographically concentrated locations for future infrastructure projects. The challenge to this

approach of alleviating geographic concentration is that it may conflict with other objectives of

Office of the President. The National Strategy for the Physical Protection of Critical Infrastructure and Key Assets,

February 2003. p. X.

See, for example, P.R. Orszag, The Brookings Institution, “Homeland Security and the Private Sector.” Testimony

before the National Commission on Terrorist Attacks Upon the United States. November 19, 2003.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

federal legislation. In the case of the economic deregulation, for example, geographic

concentration often provides the consumer cost reductions and service improvements that

deregulation was intended to achieve. In the case of environmental laws, concentration is often

viewed as a desirable means of preserving undisturbed natural areas from destructive

development. Would the CZMA be able to fulfill its fundamental balance of environmental

protection and economic development if states were not free to concentrate infrastructure where

they choose to? The resolution of such policy questions would require a careful and complex

reconsideration of long-standing policy objectives in light of evolving concerns about critical

infrastructure risk.

Encouraging Geographic Dispersion

Another remedy for geographic vulnerability is to encourage the geographic dispersion of

concentrated assets where such dispersion is possible. As discussed in this report, the federal

government may implement a range of targeted policies, including prescriptive siting, economic

incentives, and regulation, to help bring about infrastructure dispersion. Such dispersion could

involve the development of new infrastructure capacity or the shifting of critical goods and

services among existing infrastructure. Some transportation analysts, for example, have proposed

shipping containers through Mexican ports and then on to the United States by rail as a means of

reducing cargo traffic in Southern California’s ports.64 Shifting concentrations of critical supplies

and services to alternative infrastructure already in place (and not itself concentrated) may be one

way to alleviate geographical vulnerabilities relatively quickly. If the alternative infrastructure

lies outside the United States, however, such a strategy may create new vulnerabilities since it

might no longer be under U.S. protection or administration.

While encouraging infrastructure dispersion through federal policy may be helpful, doing so may

be challenging. It may be difficult, for example, to identify and prioritize geographic

infrastructure concentrations amenable to such dispersion. Predicting the long-term effects of

such polices on market economics, especially the effects on market competition, may also be

uncertain. If incentives are involved, dispersion policies may also be costly to the federal

government, potentially drawing resources away from other federal programs. Furthermore, since

infrastructure development is mostly in private and regional government (state and local) hands,

ensuring that regional infrastructure projects are consistent with federal objectives may also be a

problem. As the Congressional Budget Office has stated,

The federal government’s most important role in infrastructure provision is as a source of

finance.... Thus, for infrastructure to be managed in a way that furthers national objectives,

federal agencies must offer incentives for local managers to align their choices with the

welfare and equity goals of federal programs. Choices for infrastructure systems that aim at

such broad objectives must similarly be based on wide searches among new investments,

rehabilitation efforts, or operational changes. They must also be derived from consistent

evaluations of the long-term effects of these possible choices on the efficiency of activities

using the infrastructure.65

Infrastructure owners and regional governments are also likely to have vested interests in existing

concentrations of critical infrastructure and may oppose dispersion on competitive or other

R.C. Mireles, “A Cure for West Coast Congestion.” Logistics Today. January 2005.

Congressional Budget Office (CBO). Federal Policies for Infrastructure Management. June 1986. p xi.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

economic grounds. State and local governments may also have concerns about federalism,

particularly where federal policies affecting infrastructure dispersion may supercede local

infrastructure priorities.

Notwithstanding the challenges of promoting infrastructure dispersion, Congress appears to be

pursuing such policies with respect to the siting of new energy infrastructure, including LNG

import terminals, oil refineries, electric transmission lines, and an Alaska gas pipeline. Even

where such federal policies may be implemented successfully, however, it may still take years or

decades to achieve dispersion objectives because critical infrastructure often develops slowly. For

example, industry experts project that it would take five to seven years, absent community

opposition, to construct a new U.S. oil refinery. 66 It would take at least nine years to build the

Alaska natural gas pipeline. 67

Ensuring Infrastructure Survivability

For geographic concentrations of critical infrastructure that are difficult to diversify, or that may

take a long time to diversify, Congress may wish to ensure their near-term ability to function, or

“survivability,” during and after a major geographic disaster. Particularly where resource location

provides few geographic alternatives (as in the case of ports) reducing vulnerability through

infrastructure protection may be effective. Such an approach would broadly align with the

President’s existing strategy for protecting critical infrastructure from terrorist attack as stated in

the NIPP, although it would incorporate explicitly geographic vulnerabilities. In the context of the

NIPP or other emergency management programs, geographic vulnerability could be viewed as a

distinctive type of infrastructure vulnerability and therefore considered in federally mandated risk

assessments.

Increasing standards for design, construction, and operation, and retrofitting existing

infrastructure to higher standards may also enhance infrastructure survivability. While there are

numerous industry and government building standards for protection from earthquakes,

hurricanes, and floods in regions where such hazards exist, such standards may not account for

the critical nature of certain types of assets. In particular, the degree of general survivability these

standards impose on critical assets may not appropriately reflect the economic and social costs

that might arise should such an asset fail. Federal authority to change such standards may be

limited, however, if they fall primarily under state or local jurisdiction.

A principal challenge to alleviating geographic infrastructure vulnerabilities is incorporating the

geographic dimension appropriately into the broader infrastructure risk management and

decision-making process. One key question is whether survivability measures in place to protect

against a facility-specific event would be effective against a regional event. Backup supply

networks, redundant control centers, and other systems intended to “harden” infrastructure may

themselves be subject to disruption from a geographic hazard. Although history does provide

some guidance as to the likelihood of disruptive natural events and their potential effects,

quantifying such geographic vulnerabilities in a way that allows comparison to a broader set of

vulnerabilities may be analytically complex. Predicting the likelihood of future terrorist attacks,

O’Conner, T., ICF Consulting. Testimony before the House Government Reform Committee, Subcommittee on

Energy and Resources. “Petroleum Refineries: Will Record Profits Spur Investment in New Capacity?” October 19,

2005.

Energy Information Administration. Annual Energy Outlook 2008. DOE/EIA-0383(2008). June 2008. p. 39.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

for which history provides little guidance, adds considerable uncertainty. Attempting to allocate

limited public resources for critical infrastructure survivability based on geographic

considerations may also be challenging. In particular, it could complicate the use of quantitative,

risk-based formulas to distribute federal support for critical infrastructure protection.68 Increasing

the private costs of infrastructure through new construction standards to improve survivability

could also be controversial.

Ensuring Infrastructure Recovery Capabilities

In addition to policies promoting geographic dispersion and survivability, Congress may consider

infrastructure recovery as a means of mitigating the impacts of geographic hazards on

concentrated critical infrastructure. The federal government, through the Federal Emergency

Management Agency (FEMA) and other agencies, provides a range of emergency aid programs

for communities affected by disasters such as hurricanes, earthquakes, or terrorist attacks. Among

other assistance, these federal programs can provide grants, loans, loan guarantees, food, and

shelter to disaster victims. They may also provide long-term infrastructure assistance, such as

repair of public utilities, to affected communities. 69

While the evolving objectives of federal emergency assistance programs are a topic of ongoing

debate in Congress, the programs traditionally have been intended to assist primarily in the

recovery of an immediate disaster area.70 However, if a natural disaster, terrorist attack, or other

regional incident disrupts critical infrastructure, it may have serious social or economic

consequences far beyond the area where the disaster occurs. The loss of concentrated natural gas

supplies in the Gulf of Mexico after hurricanes Katrina and Rita, for example, sharply increased

U.S. energy prices and threatened to create significant shortages of fuel for home heating and

electric power generation in New England.71 These natural gas shortages prompted congressional

calls to increase federal aid for low income households nationwide facing high natural gas bills. 72

In light of the far-reaching impacts like these, Congress may wish to incorporate into existing

federal infrastructure recovery plans and aid programs measures that account for the distinctive

vulnerabilities of concentrated critical infrastructure. Measures related to the restoration or

alternative provision of critical infrastructure services away from the immediate area of a

geographic incident may warrant particular attention.

Conclusions

Geographic concentrations of critical infrastructure exist across a number infrastructure sectors.

Although such concentrations often provide substantial economic and social benefits, they may

For further discussion see CRS Report RL32348, Selected Federal Homeland Security Assistance Programs: A

Summary, by (name redacted).

See CRS Report RL31734, Federal Disaster Recovery Programs: Brief Summaries, by (name redacted).

Federal Emergency Management Agency, “Federal Aid Programs for Louisiana Disaster Recovery,” Fact sheet HQ08-182, September 2, 2008; P.M. Prah, “Is the U.S. Ready for Another Major Disaster?,” CQ Researcher, vol. 15, no.

41, November 18, 2005.

R. Adams, “A Hard Winter, A Thin Natural Gas Pipeline,” CQ Weekly, October 7, 2005.

See, for example: Senator Edward M. Kennedy. “Sen. Kennedy, Colleagues Urge Bush Administration to Include

Low Income Home Heating Funds in Budget.” Press release. November 21, 2006.

Congressional Research Service

Vulnerability of Concentrated Critical Infrastructure: Background and Policy Options

also be distinctly vulnerable to catastrophic geographic disruption. Any public policy addressing

critical infrastructure concentration must try to balance these benefits and potential costs. Both

government and industry have taken steps to try to protect critical infrastructure from natural

disasters, epidemics, and terrorist attacks. Nonetheless, questions remain as to whether these steps

appropriately address such geographic vulnerabilities. If Congress concludes that more federal

intervention is needed to alleviate vulnerabilities due to geographic concentration, it may employ

a number of policy options to encourage geographic dispersion (including eliminating policies

that encourage concentration ), ensure survivability, or ensure that effective infrastructure

recovery capabilities are in place to mitigate impacts of concentrated infrastructure disruption.

Because geographic hazards exist today, and geographic dispersion would likely take decades to

achieve, addressing geographic vulnerabilities may call for a combination of options.

In addition to these issues, Congress may assess how geographic infrastructure vulnerability and

survivability fit together in the nation’s overall infrastructure policies. As Congress evaluates

diverse proposals with the potential to affect critical infrastructure development—directly or

indirectly—Congress may consider whether such proposals are likely to relieve or exacerbate

geographic vulnerability. The economic or social benefits of adding capacity (e.g. refinery,

airport, shipping) to an existing concentration of critical infrastructure, or developing additional

infrastructure in a new location, may be outweighed by the increased geographic risk implicit in

such an expansion. Fiscal implications, especially related to the economic efficiency of public

critical infrastructure and the efficient use of federal funds for infrastructure projects, may also be

an important consideration. Reviewing how such infrastructure priorities fit together could be an

oversight challenge for Congress.

Author Contact Information

(name redacted)

Specialist in Energy and Infrastructure Policy

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

EveryCRSReport.com

The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the

Library of Congress, charged with providing the United States Congress non-partisan advice on

issues that may come before Congress.

EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The

reports are not classified, and Members of Congress routinely make individual reports available to

the public.

Prior to our republication, we redacted names, phone numbers and email addresses of analysts

who produced the reports. We also added this page to the report. We have not intentionally made

any other changes to any report published on EveryCRSReport.com.

CRS reports, as a work of the United States government, are not subject to copyright protection in

the United States. Any CRS report may be reproduced and distributed in its entirety without

permission from CRS. However, as a CRS report may include copyrighted images or material from a

third party, you may need to obtain permission of the copyright holder if you wish to copy or

otherwise use copyrighted material.

Information in a CRS report should not be relied upon for purposes other than public

understanding of information that has been provided by CRS to members of Congress in

connection with CRS' institutional role.

EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.