Why Should Only Workers Have to Pay for Less Polluted Air? : Smog: The AQMD’s proposed plan to trade emissions credits could reward fleeing businesses. What’s needed is a social market.
The South Coast Air Quality Management District has embarked on an ambitious program that could clear the air but inadvertently reward business flight from a Los Angeles already economically weakened by job losses and cuts in defense spending.
The “marketable permits” program, now in the planning stages, would allow companies to make money by trading pollution credits. Business interests argue that a market system would enable them to be more flexible in fighting smog and to save money that otherwise would be spent on expensive pollution-control technologies. One happy result would be fewer, if any, job losses.
By establishing a market for emissions, the AQMD would create value for a commodity--pollution--that previously was the antithesis of value. The problem is what kind of incentives such a system would bring into play.
If a company decided to move to New Mexico, it could sell its emissions credits to another company that needed them to continue operating or expand production. The departing company would, in effect, make an immediate profit by shutting down production--a golden parachute for bailing out of Los Angeles. The company rents a U-haul trailer with the money earned from its emissions credits and heads for New Mexico to start over.
Back in Los Angeles, workers would be left in need of retraining, health care and income to sustain their families. They would face the prospect of finding other jobs in a recessionary economy. The region’s tax base would be undermined, its social services further strained by the ills associated with unemployment.
If there is any doubt that the money earned from selling emission credits is sufficient to support a business change of address, consider this: In 1990, two medium-sized Shell Oil refineries in Carson were annually permitted to emit 1,900 tons of reactive organic gases and 1,400 nitrogen oxides. Based on AQMD staff estimates, these emission credits would be worth about $17.4 million if they were sold. That kind of money can move quite a bit of furniture.
Companies that leave Los Angeles should not get off so easily, or be so richly rewarded. There is a social character to business enterprise that must be recognized. The AQMD should structure the trading market to help workers and establish a disincentive for business flight. They should create, if you will, a “social market.”
If a company decided to close shop in Los Angeles, let it sell its credits in the marketplace. This would avoid distortions in the smog-for-sale market that might set back business activity and job creation. But once the trade is made, a portion of the money earned on the sale should go to help workers left in the economic lurch by business flight. The money could easily be channeled to already existing worker retraining programs or put in a fund to provide health insurance or supplemental unemployment insurance.
Businesses that stay here are economic patriots and would not be hurt by this proposal. Indeed, the marketable-permits system is designed to help companies that remain committed to L.A. and its workers. It is not designed to reward businesses that chase cheap labor, super profits and an underregulated environment.
There is also an environmental argument for helping workers. To the extent that we set up a mechanism that provides workers a bridge from sectors of economic decline to those of economic growth, it becomes easier to persuade them to move from polluting industries to less polluting ones. In many European countries, this kind of “social market” thinking is axiomatic. In Germany, for instance, when a worker is laid off, a labor-market system cushions the distress. Machinery moves him or her to a new job through broad-based retraining programs, health insurance subsidies and transportation allowances for relocation. The transition is made with maximum efficiency.
This is not considered a welfare system for unemployables. Its programs are available to everyone, thereby nurturing economic efficiency and the productive use of human resources.
In the United States, moving from job to job is a jarring, often devastating experience. If workers bear the major burden of environmental cleanup, they will rightfully ask, “Why should we be the ones who sacrifice for other people’s ideological enthusiasms?” The AQMD can help preempt this economic discrimination.
In his “The Theory of Moral Sentiments,” classical economist Adam Smith argued that for a market system to operate effectively, it had to be accompanied by a pre-existing set of moral obligations. The economy would not work if people constantly lied to one another. He knew that social values could, indeed must, intrude upon the market.
Applying Smith’s insight to contemporary economics, it is clear that a “market” economy in Sweden is dramatically different from a “market” economy in Singapore. Each is embedded in a different social and political structure.
The same logic holds for the AQMD’s proposed marketable permits system. Those who may benefit from the system have a social obligation to minimize the sacrifice of those who could be the unwilling victims of it. We must infuse the market with egalitarian social values.
To paraphrase George Orwell, we are all in this together, but some are more in it than others.
