How to Have Environmental Protection and Jobs That Enable People to Eat, Too : Law: By declaring the gnatcatcher a “threatened” species, Babbitt opened the door to some land development under certain conditions.

Bruce Babbitt’s decision to declare the gnatcatcher as “threatened” shows just how much of a political minefield the Endangered Species Act has become. The four-inch songbird is important but aggres sively protecting it could shut down land development across a large swath of Southern California. As an environmentalist with impeccable credentials, he can’t suggest tampering with the environmental movement’s crown jewel--the Endangered Species Act. But as a Cabinet member working for a President whose top priority is economic recovery, the interior secretary must acknowledge that the political underpinnings of U.S. environmental policy have shifted.

Babbitt hopes to use the “threatened” designation to prove that the most inflexible environmental law in the country can serve both economic and environmental goals. In encouraging landowners to participate in the creation of a multi-species habitat in Southern California, he is trying to exploit what little wiggle room the act allows. Babbitt has to demonstrate that the old regulation regime can be adapted to changing circumstances. If he fails, the environmental movement and the Administration may be forced to play the environmental game by a new--and undesirable--set of rules.

Recent polls suggest that the average Californian’s support for environmental protection is eroding in the face of hard times. What’s really happening, though, is something far more subtle. We still want as much environmental protection as ever. But we’re no longer willing to pay the high price of “command and control” regulatory structures, in which government agencies admonish, in minute detail, private businesses on what they can and cannot do.

What’s emerging is a consensus for “least cost” environmental protection--getting the most protection possible with the minimum of economic disruption. The question is whether it will come through market-like trading systems or through negotiations similar to those involving the gnatcatcher.

Least-cost environmental planning has won mainstream support during the past few years, most notably in the air-quality field, where trading systems have been established to create “markets” in which the right to pollute is traded among polluters, private investors and even speculators. The South Coast Air Quality Management District’s RECLAIM trading program is one example; so is the brand-new futures exchange for sulfur-dioxide emissions at the Chicago Board of Trade. The idea is that, given the right financial incentives, private companies will push to discover more efficient ways to reduce pollution, cutting the overall cost of environmental protection.

With wetlands and wildlife regulations constraining new development around the country, landowners and business interests are pushing similar trading ideas for land conservation. Federal law in wetlands and wildlife protection is especially rigid. Under the Clean Water Act, wetlands cannot be disturbed without a permit from the Army Corps of Engineers, even if the land is privately owned. Under the Endangered Species Act, private landowners cannot engage in any activity that will disrupt the habitat of a species on the endangered list without permission from the U.S. Fish and Wildlife Service.

Some biologists have been looking for ways to assign a value to wetlands and wildlife habitats. Such a ranking system would permit prioritization, “triage” of low-value land, and possibly lead to trading systems similar to those used in air pollution. Developers and the oil-and-gas industry are pushing to create a constituency for introducing these concepts into the Clean Water Act and the Endangered Species Act, both of which are up for reauthorization.

The problem is that we don’t know how to value a piece of land as wetlands or habitat. Though many biologists are keen on the idea that “indicator” species can be used to track the overall health of most wildlife, there are millions of plant and animal species and we know little about most of them. Accordingly, environmentalists are not eager to amend federal law to permit ranking and trading of land based on its purported environmental value. They also fear that business interests will use such proposals as “cover” to gut wetlands and wildlife protection laws.

To combat this attack, Babbitt has pushed a method he successfully used while governor of Arizona: time-consuming negotiations involving all parties to a dispute that, hopefully, lead to consensus on the issue. In economic terms, Babbitt advocates a system in which the initial “transaction cost”--the negotiation--is extremely high, but businesses save money in the long run because they will have more certainty about what they can do.

Babbitt’s handling of the gnatcatcher problem illustrates his approach. The “threatened” listing enabled him to invoke a little-known provision of the Endangered Species Act that allows some development if landowners meet certain conditions--participating in multispecies negotiation (the transaction cost), which will continue until at least the end of this year and probably longer.

Early indications are that Babbitt’s solution will motivate more local governments and landowners to negotiate seriously, just as environmentalists have been predicting for the last 18 months. But not all landowners are going to be willing to pay the high transaction cost that up-front negotiation requires. Southern California landowners have been patient largely because of the real-estate bust--they can’t build anything, anyway. If the gnatcatcher talks drag on into 1994, they could bump up against a real-estate recovery, and then the developers won’t be so patient anymore.

Babbitt and other environmentalists in the Clinton Administration, such as Carol Browner, head of the Environmental Protection Agency, know that the Democratic environmental constituencies aren’t yet willing to surrender to market-based trading schemes. It’s clear the Administration will continue to thread its way through environmental issues the way Babbitt did on the gnatcatcher, looking for pinholes of daylight in the laws so they won’t be vulnerable on Capitol Hill.

Short of that, Bill Clinton, in search of an economic recovery, may be forced to move more toward trading systems and market-based approaches to deal with land-conservation issues, no matter what his environmental constituencies say. One way or another, least-cost environmental protection will continue to gain momentum.

DR, CATHERINE KANNER / For The Times