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Realistic Air-Quality Goals Will Prevent Cost Explosion

<i> David Harrison, a senior consultant at National Economic Research Associates Inc. in Cambridge, Mass., was the project director of a study concerning the economic effectsof the draft air-quality management plan</i>

The South Coast Air Quality Management District has postponed its vote on the draft air-quality management plan that it proposed in September. The postponement provides the district with an ideal opportunity to reconsider its approach and move toward a plan that sets reasonable goals and establishes cost-effective means of achieving them.

The proposed plan has gained national attention because of the stakes involved and because the district’s decisions might affect pending federal legislative and regulatory initiatives. Supporters of the plan argue that it is required by the federal Clean Air Act and would produce public-health benefits much greater than its costs. Detractors argue the opposite--that the plan would impose enormous costs far out-weighing its benefits.

This debate obscures the true issue. The district does not have the authority to implement the vast majority of these control measures, most of which would not be put into place for many years. The true issue is whether residents of the Los Angeles Basin would be better served by a “tough” plan that is admittedly unrealistic but that can be used as a stick to force reluctant businesses and individuals to reduce emissions, or by a reasonable plan that sets realistic goals and searches for the least-cost means of achieving them. History suggests that residents would be better served by the second strategy.

Driven by the Clean Air Act, which appears to require that no individual suffer any adverse health effect from breathing the air, the district and its predecessors have labored for decades to come up with plans that show compliance with federal standards for smog. These well-meaning plans invariably include optimistic projections of emission reductions that are proved unrealistic soon after each plan is proposed. After almost two decades of such plans,the air is cleaner--but not even close to meeting the stringent federal requirements. Ozone concentrations--the way we measure smog--are currently about three times the federal standard on the worst days at the worst location in the basin. (The federal government requires that its standards be met at every location during all but one hour of the year.)

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The current plan continues this long tradition of setting unrealistic goals. It shows that the basin will comply with federal standards everywhere at all times by the year 2007, but only in the way in which previous plans have shown compliance--by listing many control measures whose emission reductions are highly speculative and whose true costs would be enormous.

The draft plan’s total cost would be about $14.8 billion a year--more than the annual total sales taxes paid in the entire state of California. Like a sales tax, most costs of the plan to industry would be passed on to customers in the form of higher prices for goods and services. But unlike a sales tax, which is explicitly listed when you make a purchase, the “pollution tax” would be hidden as a form of “basin inflation.” Basin inflation is particularly insidious because it would hit the poor the hardest. Like sales taxes, it is regressive. Although the average household would pay more than $2,500 per year--about 8% of its income--in higher prices for goods and services, those in the lowest income group would pay more than 20%.

The benefits of stringent controls in air pollution are substantial, but nowhere near $14.8 billion. Using the basic data and methodology outlined by the district results in a benefit estimate of $2.6 billion, most of which is due to controls on particulates rather than ozone. Ozone benefits are only $53 million, less than 1% of the estimated $11.1 billion in annual costs for ozone control. Ratcheting down emissions to meet the federal standards in the basin may simply not be worth it.

I list these effects of the plan not because these vast sums will ever be spent. It seems unlikely that all of the plan’s 160 control measures would be implemented. The danger of setting unrealistic goals is that the resulting conflicts would actually dilute the effort to identify cost-effective control measures and would result in less progress in air-quality improvement.

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Supporters of the current plan are likely to believe that “tough talk” is needed as a stick to force reluctant businesses to clean up. According to this argument, the district would get nowhere if it came up with a reasonable plan to reduce emissions in a cost-effective way.

I disagree. Rather than another round of “tough talk,” which is invariably going to end in much heat and little light, the district should set realistic goals and develop a plan that meets those goals in the cheapest possible way.

This is not an excuse for endless delay or “paralysis by analysis.” The district has already done much of the work to devise a cost-effective plan. But that information has been virtually ignored in the single-minded effort to show compliance with federal standards.

The district’s current information can be used to identify measures that provide the “biggest bang for the buck.” For example, the district’s data suggest that residents would be able to obtain about 80% of emission reductions for ozone precursors at less than 40% of the draft plan’s estimated costs for reducing those pollutants. This information would also allow the district to determine how stringent to make certain controls and even which individual sources in the basin could be controlled most efficiently.

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The district has an ideal opportunity to lower the rhetoric and raise the welfare of basin residents. Developing a sensible plan that will produce benefits greater than its costs may not make headlines. But it will permit residents, particularly those with low incomes, to avoid the insidious burdens of basin inflation.


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