AQMD Orders Staff to Draft Smog Market Plan : Environment: With 8-1 vote, board proceeds with revolutionary project to let polluters buy and sell rights.

Signaling a dramatic new direction in the decades-long war on smog, the South Coast Air Quality Management District on Thursday ordered its staff to prepare plans for a revolutionary new trading market in pollution rights.

The 8-1 vote Thursday night came after an overflow public hearing that lasted six hours. The lone dissenting vote was cast by Larry Berg, a political science professor at USC who was appointed to the district board by Assembly Speaker Willie Brown.

“I fundamentally do not believe this will work,” Berg said.

Although another vote on the finished plan will be needed before the market can open for trading, AQMD Executive Officer James M. Lents predicted that “there will be a market.”

“This is a potentially historic moment for the district,” Lents told the board before the vote. AQMD officials hope to begin phasing in the market trading system within a year.

However, a volley of questions from AQMD board members and business and environmental representatives pointed to difficult negotiations ahead as details of the program are hammered out.

Lents, however, said he still believed the district could begin implementing the program by early next year. “They gave us what we wanted,” Lents said after the vote.

Under the plan, traditional controls on individual sources of air pollution such as refinery stacks and boilers at electric plants would be largely scrapped. In their place, separate markets for three pollutants--hydrocarbons, nitrogen oxides and sulfur oxides--would be established. Each polluter would be issued a share of overall emissions in the region, based on their past production.

Over the first 10 years of the program, the value of each share would decline by 6% annually for hydrocarbons and by 8% for nitrogen oxides, forcing a cleanup. The two pollutants combine in the presence of sunlight to form ozone, a major ingredient of smog. Emissions of sulfur oxides would be required to drop by 8.5% yearly.

If the market is successful, the four-county South Coast Air Basin could become a model for similar programs throughout the nation. If it fails, however, it will dramatically diminish hopes by polluting industries to pare their mounting smog-control costs while curbing pollution in the nation’s dirtiest air basin.

Failure would also put the region behind schedule in its efforts to clean up the air by the year 2010.

Known officially as the Regional Clean Air Incentives Market, or RECLAIM, the market will cover 700 businesses that emit nitrogen oxides, 2,000 firms that emit reactive organic gases and 100 firms that emit sulfur oxides.

Although these firms represent a small percentage of the 52,000 polluters in the region, they account for 86% of all air pollution.

“We’re here to consider a revolutionary new concept for cleaning up the air pollution in Southern California,” AQMD Board Chairman Henry W. Wedaa said as he opened the public hearing in the district’s Diamond Bar headquarters.

Under the existing regulatory approach, Wedaa said, peak levels of air pollution have been cut in half since the 1950s, despite unprecedented growth. But further progress, he said, would require increasingly expensive controls on smaller and smaller businesses.

“This results in an unacceptable increase in the regulatory burden on businesses and an increased burden on our district staff,” Wedaa said. “There must be another way.”

Significant savings would result under the new approach, the district said. In 1994, for example, compliance costs would be $427 million less under a trading program than with the existing regulatory scheme. Between 1994 and 1997, there would be a major reduction in the costs to control nitrogen oxides--$22.7 million compared to $1.5 billion. The cost of controlling hydrocarbons, however, is comparable--$1.53 billion under the new approach compared to $1.55 billion under the present system.

Winning approval for the concept of “another way” is likely to prove far easier than winning agreement on the details.

A standing-room audience of about 400 watched as about 70 speakers attempted to influence the AQMD board’s instructions to the staff.

Several major players, including representatives of the U.S. Environmental Protection Agency and the state Air Resources Board pointedly cautioned the AQMD that the final plan must be as effective in cleaning the air as the current program.

“We can’t afford to lose any ground in that significant battle,” said James Boyd, executive officer of the state Air Resources Board. Boyd and David Howekamp of the U.S. Environmental Protection Agency also emphasized that their approval of the plan ultimately depends on whether it could be enforced and whether emission reductions could be proved.

Underscoring that concern were environmentalists. “I would urge you to go slowly or don’t go at all,” said Jim Jenal of Citizens for a Better Environment. “On paper, it looks good. But on paper no one pollutes, and on paper everyone plays by the rules. . . . But in the real world people cheat.”

At the same time, Arco Products Co. President George H. Babikian served notice that unless major provisions of the concept are changed, his company will continue to oppose the plan. As now envisioned, he said, the plan is “unimaginably cost prohibitive” for Arco and others. Arco, he warned, could be forced to curtail its gasoline production, resulting in higher prices at the pump and more unemployment.

But the head of a group concerned about the effects of pollution on the poor told the AQMD board that he worried that public health would take second place to issues of business flight and job losses. Still, Eric Mann, director of the Labor Community Strategy Center, conceded that approval of the idea was inevitable.

Despite the reservations, the fact that the AQMD would even consider market trading was viewed Thursday as a triumph for many major business interests, which have long smarted from increasingly costly smog controls. Just a year ago, the suggestion of a smog emissions market drew hoots and skepticism from AQMD officials and environmentalists.

Air Resources Board executive officer Boyd noted that the proposal enjoyed “an amazing amount of consensus,” unimaginable a year ago.

Los Angeles attorney Robert A. Wyman, a key figure in advancing the market proposal on behalf of large industries, told the board that “a well-designed RECLAIM program is a great bargain for the environment and for the economy. . . . The cost of clean air will drop by several hundred million dollars a year.”

But environmentalists only grudgingly endorsed moving ahead. They warned that they still had major reservations.

“I’m here this evening not to urge a red or a green light, but a yellow light, perhaps veering toward red,” said Mary Nichols, senior attorney with the Natural Resources Defense Council.

Tim Little, executive director of the Coalition for Clean Air, complained that the board gave the staff little guidance in endorsing the concept of a market trading system. “They gave the staff a blank check as far as I’m concerned,” Little said.

However, the board did direct the staff to prepare a summary paper on concerns raised in the hearing. Lents said afterward that the stickiest issues would probably take seven months to resolve.