Proposed Clean Air Rules Changes Spark Battle : Environment: Struggle reported between White House, EPA over permits for polluters. Dispute involves possible ethics violation by Quayle aide.

A growing internal struggle between the White House, the Environmental Protection Agency and environmental activists in Congress is about to come to a head over proposed new rules to enforce the nation’s air pollution laws.

The dispute, which also involves allegations of a possible conflict of interest by a senior aide to Vice President Dan Quayle, is said to have left EPA Administrator William K. Reilly deeply incensed over what environmental critics and even some Administration sources view as a White House attempt to weaken the key enforcement provisions of the 1990 Clean Air Act.

Reilly, for whom the issue is described by some insiders as the “last straw” in a string of environmental battles with the White House, is cutting short a trip to California this week to return to Washington to deal with the conflict, one Administration source said. “Reilly is ready to go to war over this one,” the source added.

At issue is a set of highly technical regulations that the EPA is drafting to implement the permits section of the Clean Air Act, the landmark revision of air pollution laws that Congress passed last year after a decade of legislative stalemate.

The EPA sent a draft of the new rules to the White House earlier this year but the President’s Council on Competitiveness, a regulatory review panel chaired by Quayle, objected that the regulations were too tough on industry and sent them back to the EPA with suggestions for more than 100 changes that would weaken them.

Now, as Reilly prepares to propose the final regulations, the internal debate has burst into the open with disclosures--first reported by the Boston Globe and the Washington Post--that the executive director of the council, Alan B. Hubbard, is the co-owner of a small but growing Indianapolis chemical plant whose business could be affected by the new law.

White House officials strenuously deny that Hubbard’s business interests as co-owner of World Wide Chemicals, a manufacturer of car waxes and cleaning fluids, are in conflict with his involvement in drafting the new clean air rules.

Although World Wide had sales of about $20 million last year, it emitted less than 10 tons of toxic and ozone-depleting pollutants--not enough to classify it as a major pollution source requiring a federal permit under the Clean Air Act.

Moreover, the officials said, Hubbard--who has never made a secret of his business connections--received a special waiver from Quayle allowing him to work on environmental issues after he pledged in writing last summer to excuse himself from involvement in any matter that directly affects his own business interests.

Hubbard, who also serves as Quayle’s chief counsel, took “all the proper precautions to guard against any conflict” when he joined Quayle’s staff last year, White House Press Secretary Marlin Fitzwater said.

However, other Administration sources said there was considerable dissatisfaction at EPA over what one of them described as Hubbard’s “pivotal” role in pushing for changes in the permit regulations that generally benefit polluting industries, including his own.

The source, who spoke only on condition of anonymity, said that most of the opposition to the EPA proposals had come from the Council on Competitiveness and that the potential for a conflict of interest still exists because one of the rules it sought to change would have applied the permitting requirements to small source polluters--like World Wide--after five years.

The fact that World Wide, which paid Hubbard $786,233 in dividends last year, is not now a major source polluter also does not take into account the possibility that it could become one in the future, or that its costs are likely to rise if any of the companies from which it buys the chemicals it processes increase their prices as a result of the new rules, the source added.

At EPA there is “some dismay,” another source said, that Hubbard has been allowed to “participate extensively and with authority in rulings that could affect his business interests.”

On Capitol Hill, Rep. Henry A. Waxman (D-Los Angeles), chairman of the House Energy and Commerce Committee’s health and environment subcommittee, is looking into Hubbard’s involvement in the permits dispute. But while Waxman has stopped short of accusing Hubbard of a conflict of interest, he and other Democrats say that the issue raises broader questions about the Council on Competitiveness, the secretive manner in which it works and the way it gives business groups backdoor access to the White House.

Formed last year by President Bush to ensure that regulations drafted by federal agencies are not unnecessarily burdensome to industry, the council has six permanent members besides Quayle: Treasury Secretary Nicholas F. Brady; Commerce Secretary Robert A. Mosbacher; Richard G. Darman, director of the White House Office of Management and Budget; Michael J. Boskin, chairman of the White House Council of Economic Advisers; Acting Atty. Gen. William P. Barr and White House Chief of Staff John H. Sununu.

It meets formally about once a month to review proposed regulations, but most of its work is done by the small staff that Hubbard, a conservative Republican, directs out of Quayle’s office. While the staff consults frequently with business lobbyists, it keeps few written records and has refused requests to appear before congressional committees to answer questions about the way it works.

“In many ways the council, which apparently thinks itself beyond public accountability and beyond the law of the land, is a domestic version of the Iran-Contra operations of the National Security Council during the (Ronald) Reagan era,” Waxman charged at a recent hearing called to examine the council’s role in rewriting clean air regulations.

“It is a shadow government for special interests,” Rep. Gerry Sikorski (D-Minn.) declared.

While Republicans dismiss such criticisms as politically inspired attacks by Democrats on the eve of an election year, even some Administration sources concede that the council has targeted the Clean Air Act as an example of over-regulation by government.

This in turn has fired a fierce debate in Congress, where Waxman and other environmentalists have accused the White House of trying to “illegally . . . and surreptitiously rewrite” the Clean Air Act.

So far most of the concern has focused on a change proposed by the council to a section of the law that requires a polluting firm to apply for a new permit if it wishes to exceed the levels of emissions allowed by its existing permit. Applying for the new permit in turn triggers a public review process that must take place before the permit can be issued.

Arguing that businesses need more “operational flexibility,” the council rewrote EPA’s proposed rule on this aspect of the permit section to give polluters the right to increase their emissions as much as they want without a public review if the state authority that issues permits fails to object within seven days of receiving written notice.

Protesting that this change would render the entire Clean Air Act virtually unenforceable, Democrats in both the House and Senate announced hearings on the council’s role in making what Waxman said are “wantonly illegal” changes in the law. Sen. John Glenn (D-Ohio) also introduced legislation to subject the council’s work to the same “sunshine” reporting requirements imposed on other regulatory agencies.

Knowledgeable sources said that Reilly, who recently lost one battle with the council over incinerator regulations and is still fighting another one over wetlands protection, is “deeply disturbed by the council’s interference on the permits issue” and is planning to fight it “with everything he’s got” when he returns from California Friday, a day ahead of his original schedule.

“Until now, Reilly had always regarded the Council on Competitiveness more as a minor irritant, but now they’re on a collision course,” one Administration source said. But “his limits will really be tested on this,” the source added, because while it has no statutory power, the council does speak “with the imprimatur of the White House.”