Emissions Trading Plan Is Slow to Get Into the Air : Environment: Program for selling pollution credits is pared down, delayed. Enforcement is a key concern.

Southern California’s vaunted pollution trading program--once billed as a broad and revolutionary way to improve air quality--is a shadow of its original self and running badly behind schedule.

The program is still innovative, but it is also dogged by questions from environmentalists, industry and other regulatory agencies about when it will actually begin and if it will really accomplish the ambitious smog reductions it promised when proposed.

“It seems increasingly likely that (the program) may be little more than a very expensive, and largely unworkable, diversion from the less glamorous job of issuing and enforcing rules to reduce smog in Los Angeles,” said Rep. Henry A. Waxman (D-Los Angeles), who is investigating whether planning for the trading program has diverted attention and resources from the AQMD’s other pollution-reduction efforts.

As recently as a year ago, the South Coast Air Quality Management District said the program would regulate an estimated 2,800 Southland industrial facilities and be operating by this spring. Today, the number of pollution sources to be regulated is down to 535, and the start date has been pushed back to 1994.

Under the proposed trading plan, polluters who reduce their emissions beyond required levels may sell right-to-pollute credits to other companies, who would be free to choose whatever emissions equipment they want to meet air quality standards. If the necessary equipment were prohibitively expensive, the company could decide instead to buy credits from firms with less pollution.

The idea is to allow companies that buy credits to exceed certain requirements as long as the overall air quality goals for the region are met. The system would replace regulations that specify the sorts of equipment and materials factories must use to meet air standards. Only companies that spew more than four tons of the pollutants covered by the program will be eligible, but not all will be included.

Originally, the plan was to trade credits in three major pollutants. It is now down to two, with hopes to add the third later. And with less than six weeks to go before the trading program--known as the Regional Clean Air Incentives Market, or RECLAIM--must be finalized to meet a deadline from the state, major questions remain:

How will the agency keep tabs on the pollution credits as they are traded from company to company? How sternly will it punish violators? Will this help or hurt the economy? Will it really help clean up the air?

James M. Lents, executive director of the AQMD, figures there is a 90% chance of ironing out the details this year of trading programs in two of the pollutants--nitrogen oxides and sulfur oxides. But he thinks the chances are only 50% this year of creating a workable market in reactive organic gases, or hydrocarbons, the third part of the equation. The process has been too complicated to do it all at once, he said.

“But it’s still the first major trading program for an urban area in the world,” Lents said. “It has a lot of flexibility (for business) and a lot of innovation. It’s something that needs to go forward for this area, which is worried about the business climate and still wants clean air.”

Nitrogen oxides and reactive organic gases interact in sunlight to form ozone, the powerful lung irritant that is the major component of smog. Sulfur oxides are the major component of acid rain and aggravate asthma.

The AQMD staff has been working feverishly to complete the trading program but in the rush to the finish, the fine points have been constantly changing. Even many of those affected cannot address many of its details with great certainty.

Enforcement is the key issue, and perhaps the one evolving most rapidly, as the agency fields increasing amounts of input and pressure. An integral part of enforcement is monitoring. To pinpoint who will be violating RECLAIM rules, the AQMD must have an accurate measure of how much pollutants companies are emitting. Some critics wonder if the district can effectively keep tabs on that.

“The (recent) California Air Resources Board audit of emissions showed they were being 70% underestimated” by industry in the area,” said Gladys Meade, environmental health director of the American Lung Assn. of California. She has worked with the district on RECLAIM.

Erica Martin, a deputy district attorney investigating environmental crimes, fears that problems in monitoring industry will make it difficult to prosecute violators.

“How are we going to present this in court?” asked Martin, who has served on a RECLAIM enforcement committee. “What evidence are we going to use? I don’t understand how AQMD plans to enforce this.”

The so-called base lines--the number of pollution trading credits each company is given initially--have caused great concern for environmentalists and industry alike. They question the program’s fairness, fearing some industries will be given too many credits--the permission to pollute more than they currently are--while other businesses will start without enough.

Robert Wyman, who has been negotiating with the AQMD on behalf of a large coalition of businesses, is optimistic the problems will be worked out. But in the initial base line projections, he said, “there are some facilities who received substantially fewer emissions than (they used) in the most recent year. They’re concerned about starting in the hole.”

Joel Schwartz, staff scientist for the Coalition for Clean Air, a Venice-based environmental group, said he fears the program will “end up as a paper exercise. They’ve over-allocated emissions to begin with, so we won’t be getting any real reduction for a few years.”

Schwartz cites in particular the sulfur oxides market. The facilities that emit enough of this pollutant to be included in the trading program spewed out 20 tons of the substance per day in 1991. But the base line, the amount the district will allow in the first year of trading, is 25 tons per day.

Emissions of nitrogen oxides also reflect an increase in the first year, Schwartz said. The coalition has been involved in the RECLAIM debate and formulation, and Schwartz bases his figures on data from the district.

Lents does not disagree with Schwartz’s contention that companies will be given credits for more pollution than they have emitted in recent years. “We’re in quite a bit of a recession,” Lents said. “Businesses are not operating up where they should be. . . . We don’t want to start the market conforming to a depressed economy.”

The plan’s main lure for industry is a promise of more flexibility in choosing how to meet air quality standards. But some industry representatives, such as Andrew C. Hirsch of the Southern California Gas Co., believe the promised flexibility will not materialize.

In a March 31 letter to the AQMD, Hirsch, who opposes the program, wrote that it does not “afford RECLAIM facilities the increased operational flexibility that was promised earlier.” In addition, he wrote, the new program would double compliance costs.

While many environmental groups endorse the concept of RECLAIM, at least one, Citizens for a Better Environment, is against any form of pollution trading and recently staged a demonstration at the Pacific Stock Exchange to voice its displeasure.

Jim Jenel, director of the group’s clean air program, says that if a factory decides to buy pollution credits instead of cleaning up its emissions, there’s nothing neighbors can do to make the area healthier. “That’s really not the way to involve the public in cleaning up air quality,” Jenel said.

Although academics have been discussing free-market approaches to regulation for years, the air district has been working on the smog exchange only since about 1990. In March, 1992, the district’s governing board ordered its staff to prepare plans, marking RECLAIM’s official kickoff.

Four months later, the district abandoned work on 24 new rules that would have regulated nitrogen oxides, sulfur oxides and reactive organic gases so that it could work full time on the market.

Last October, the California Air Resources Board--which has the final say over RECLAIM--told the district it could have until the end of June to design the trading program.

After three months of postponing hearings and votes on the RECLAIM’s final design, the AQMD board decided May 14 to ignore the deadline. Barring another postponement, a final hearing and vote on RECLAIM is scheduled for July 15 and 16. A long-delayed environmental impact report and socioeconomic impact study is being released this week that many hope will clear up some of the questions.

The state Air Resources Board, which has final approval power over RECLAIM, is willing to be flexible on its deadlines--for now.

“If we’re looking at a two-week delay, we’re willing to accommodate the district,” said Bill Sessa, ARB spokesman. “We would be more concerned if we were looking at a delay of any longer than that. A two-week delay is not a consequential delay for a program that will have an influence for years to come. Still, there clearly is some urgency here.”

Lents concedes that even with the delay, the package of rules that will be sent to Sacramento will be incomplete--missing the third part of the trading program. “I can’t answer what (the ARB is) going to do,” he said.

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Explaining RECLAIM

Here is a look at the Regional Clean Air Incentives Market, a plan to reduce pollution and give companies flexibility in controlling emissions by allowing them to sell right-to-pollute credits.

* What it is: The program, known as RECLAIM, will affect about 535 facilities, down from the original 2,800.

* What is covered: It now will cover only two pollutants: nitrogen oxides and sulfur oxides. A market in reactive organic gases, or hydrocarbons, has been put on hold.

* How it works: Polluters who reduce their emissions beyond required levels could sell right-to-pollute credits to other companies, who could use the credits to put off installing new emission controls.

* The price tag: The cost to businesses of complying with regulations under the two-pollutant market would be $182.5 million a year, compared to $346.6 million a year under current rules, for a 47% saving of $164.1 million.

SOURCE: South Coast Air Quality Management District