A Promising New Weapon in the Battle to Clean Up the Air : Southern California is right to try the grand ecological experiment: using market forces to reduce pollution

Southern California is preparing to hitch classic economic theory to Space Age technology in a landmark change in its efforts to rid the region of smog.

Despite some loose ends, the South Coast Air Quality Management District staff wants to start drafting rules in less than three weeks that may well put the region on the fastest track yet toward meeting clean air standards.

The district’s policy board is scheduled to decide whether to move ahead on new rules March 5. We think the board should say yes.

The old approach has served Southern California well during the first two decades of its pioneering fight for clean air. But times have changed. Because a more sophisticated tack on smog is within reach--partly because of new technology and partly because economic incentives have proved their value as enforcement tools--the new approach deserves a chance.

TYING UP THE MANY LOOSE ENDS

With few exceptions, both environmental activists and business spokesmen agree on the concept basic to the new phase--that the marketplace is a strong enough force to drive down air pollution. But they worry about details. The loose ends bother environmentalists because they don’t want to take anything on faith when it comes to curbing pollution. They want evidence that the system would be enforceable and that the AQMD would not spend so much of its time putting the new system in place that it would let the old one fall apart.

The loose ends bother businesses in a different way. They want the freedom to experiment with new control equipment or with new and less polluting ways of doing business that the new system would offer. They can hardly wait to see whether projections hold up that it would save up to $1 billion a year in their cost for cleaning the air. And, in fact, the last thing they want is a haphazard experiment that would let pollution get out of control and cripple the notion of market incentives in clean air.

These are valid concerns, two of many about an experiment that has never been tried on such a grand scale anywhere in the United States. But the potential problems seem manageable. One reason is that environmental groups, independent economists, business people and government agencies have worked more closely on this project, and with more of their cards showing, than on any other in the history of the clean air movement. Another is that while the reasons differ, nobody disputes the need to guarantee that the new rules can be enforced and will cut smog, not just on paper but in the real world.

However, permission to start drafting new rules is not a blank check. The rules must be written, examined and ratified by the policy board before they go into effect. Thus the board will keep firm control of the process.

MAKING SURE THE GOAL OF SMOG REDUCTION IS MET

For the 2,700 Southern California plants that account for 85% of the region’s hydrocarbons and 95% of the nitrogen oxides that do not come from automobiles, the new approach involves two fundamental changes in the way pollution is controlled.

Under the old rules, the amount of pollution allowed from each generator, boiler, baking oven or other piece of equipment is generally specified by the smog-control agency, which accepts no substitutes.

In the future, a company could choose the least expensive mix of new controls as long as total pollution within an imaginary bubble encasing its property remained within permitted limits. Control hardware already in place would continue to operate.

In a second major change, the 2,700 companies would get certificates that showed how much pollution they could generate in the first year of the program.

To push Southern California air to higher standards, NOx emissions must drop by 8% a year and hydrocarbons by 5% a year for the next several years.

Part of the pressure on industries and businesses to reduce emissions on schedule would come from the fact that each year the permits would allow less pollution.

Because these permits could be bought and sold on a kind of smog commodities market to give companies even more flexibility in the way they met standards, companies would have to cut emissions just to keep their “stock” from losing value on the market.

The credits could be used in several ways.

A company that found an inexpensive way to slash its emissions to, say, half of what the law allowed would get credit for the difference between what it was allowed to emit and what it actually put into the air. It could then sell all or part of that difference to a firm that needed to cut emissions but also needed more time to develop new control technology.

Although the first draft of the plan was still changing almost daily last week, as the plan now stands, restaurants, dry cleaners, sewage treatment plants, gasoline stations and other polluting businesses would operate under the old rules, at least in the early years of the new system.

HARNESSING MARKET FORCES TO HELP THE ENVIRONMENT

Although supporters of the new approach use words like bold and revolutionary to describe the plan, its economics were spelled out by a Cambridge University professor not long after the turn of the century. And something similar was tried in Long Beach more than a decade ago, although on a more limited scale.

Prof. A. C. Pigou, one of whose pupils was John Maynard Keynes, wrote during World War I that air and water were not free goods and that the cost of cleaning up damage to them should be counted in production costs along with land, labor and capital. Nobody listened then.

In the 1970s, Standard Oil of Ohio wanted to transfer Alaskan oil from its tankers to a Texas pipeline in Long Beach Harbor. There was no way to avoid polluting the region’s air because there was no way to plug every hole through which hydrocarbons could escape. So air pollution officials agreed to let Sohio “offset” its tanker pollution by paying to cut emissions at power plants or by installing smog control devices at hundreds of dry cleaning plants. The deal fell through, but for reasons other than pollution controls.

Trading in credits would involve the same principle, only on a much larger and more sophisticated scale.

USING TECHNOLOGY TO MONITOR THE NEW SYSTEM

The air quality district would keep, and perhaps even increase, its staff of inspectors to verify compliance. But the day-to-day collection of data to monitor pollutants pouring out of smokestacks or oozing out of loose valves in refineries would be “paperless.” The air district’s new headquarters on a hillside in Diamond Bar would, in effect, plug into refineries and other plants it monitored. Sensors in smokestacks, for example, would monitor emissions of NOx constantly, feeding the data to computers at the AQMD’s big green headquarters that would evaluate it and store it.

Counting hydrocarbon emissions--technically counted as reactive organic gases--would be more difficult. One approach under study for furniture factories, for example, would monitor bar codes on cans of paint flowing into furniture factories--the way supermarket checkers ring up prices--and calculate pollution output from paint input.

GETTING AROUND ALL THE BIG UNKNOWNS

A number of problems--with no answers yet in sight--could be serious roadblocks to the new approach to curbing pollution.

One involves the potential for companies to sell their emission permits and flee Southern California for what they saw as greener pastures, taking their emission profits with them.

Labor union officials are particularly worried about a loss of jobs through such sales, although some AQMD officials say that the money a company could raise selling emission permits rarely would cover more than a fraction of the cost of moving. AQMD analysts are still looking for a satisfactory solution. Maybe the smog stock certificates would be made invalid for non-resident firms.

Another is the potential impact of the free market on small business, especially minority enterprises, that might not have the money to buy new equipment to meet increasingly tight NOx and hydrocarbon limits.

These questions must be answered before the new phase is launched. But as they cannot be resolved in a matter of weeks or perhaps even months, there seems no good reason to postpone the decision to start drafting new rules. The board should clear the way. At stake is a more nuanced, market-driven approach to reducing pollution in Southern California.