Key Southland Firms Assail Pollution Credit Proposal

More than two dozen major business groups in Southern California have launched a campaign against an ambitious proposal to fight smog by trading pollution credits, contending it will substantially raise the cost of cleaning the air rather than lower it as promised.

The barrage of criticism, led by the Gas Co., comes less than a month before the South Coast Air Quality Management District board is scheduled to decide the fate of the plan, which had been promoted as the keystone in the region’s fight against smog.

“This was supposed to be an alternative path to clean air, a cheaper, more flexible one. But now we say that (the program) is not living up to its promises,” said Anne Smith, a vice president of the Gas Co.--formerly the Southern California Gas Co.

“We were hopeful the concept could be salvaged but our patience kind of wore out. The reality of the rule tells us it is not fixable. It’s a nice theory gone sour in implementation.”

Under the AQMD’s revolutionary strategy called RECLAIM (Regional Clean Air Incentives Market), 460 of the largest polluting businesses in the four-county region would be allowed to emit a certain amount of smog-producing gases. Each company then would decide how to meet that limit. Those managing to reduce emissions beyond the maximum could sell pollution credits to others having trouble complying.

Ironically, the idea was developed to appease businesses, which were highly critical of the AQMD’s traditional anti-pollution effort--a series of individual rules targeting each industry. The AQMD’s goal in the new program was to cut the cost of fighting smog in half and replace the complex, piecemeal network of rules.

On Monday, AQMD officials defended their proposal, asking the business groups to give them a chance to work out some kinks.

“We’re at a historic crossroads of whether we use market-based systems to clean up air pollution in this basin,” said AQMD Executive Officer James M. Lents. “We think companies ought to take a long, hard look at the program before abandoning it.”

Although the business groups generally favor some kind of pollution trading program, they now say the agency’s traditional approach is far better than RECLAIM.

A Gas Co. study to be released today concludes that the program has many uncertainties, and costs could soar since businesses would have to perform substantial monitoring and reporting of their pollution.

Smith called it a “real lousy program” and urged the AQMD staff to “quit wasting time and go back” to the old approach until it can come up with something better. The Gas Co. estimates that it would spend an extra $5 million in the first year compared to traditional means of smog control.

Even before the business groups released their study, the program, which has been under development for more than two years, had encountered several problems. It is already several months behind schedule and had been pared down to about 460 businesses in Los Angeles, Orange, Riverside and San Bernardino counties from an original 2,800. It now applies to only nitrogen oxides and sulfur--two of the three major substances that pollute the region’s air.

Air quality officials, however, defend RECLAIM as a creative, market-based program to clean up the Southland’s biggest polluters without being inflexible. They say it would cost the businesses involved 55% less to clean the air than traditional anti-smog rules--a savings of tens of millions of dollars per year.

“We can go back to . . . write rules to clean the air, but we feel it is less cost-effective,” Lents said. “We think people will be poorly served if we do abandon the program.”

Major business groups that are opposed include the Orange County, San Bernardino Area and Greater Riverside chambers of commerce; the Los Angeles Central Cities Assn.; the Economic Development Corp. of Los Angeles County; the California Manufacturers Assn.’s air quality alliance; Concerned Citizens of South Central Los Angeles; the Black Businessman’s Assn.; the Latin Business Assn., and the Asian Business Assn.

Some of the groups want the program abandoned while others are urging major changes.

Not all businesses, however, want to see the program scrapped. As the region’s largest polluters, oil industries, electric power utilities and some major aerospace firms would receive most of the cost benefits under RECLAIM.

Robert Wyman, an attorney who represents a coalition of large businesses--including six oil companies, six aerospace firms and two utilities--said he worries that some organizations are trying to scuttle the program prematurely. He said many of its problems are being worked out.

“For this basin to achieve clean air with a vibrant economy, it will take a market-based program like RECLAIM,” Wyman said. “The current proposal contains some significant design flaws, but they can be remedied. We are optimistic that the staff is working on them and may have a resolution as early as next week.”

Lents blamed the opposition on “inaccurate assumptions” by the Gas Co., which he said opposes RECLAIM mainly because it fears losing business to the electric-power industry.

But Cody Cluff of the Economic Development Corp., a nonprofit corporation to create and retain jobs in Los Angeles County, said the program would be a blow to an already dismal economy. He said it would discourage new businesses from moving in and place a large financial burden on some existing firms.

“For the smaller employers, their costs would be exorbitant, five- to 10-fold increases in their testing costs alone,” Cluff said. “We think they ought to take a step back and come up with a program that is really an opportunity to clean the air and is not onerous to business.”

Environmental groups also have been overwhelmingly critical, with many calling the program unworkable. They say it would be difficult for the AQMD to track who is violating the rules, and worry that it will result in paper shuffling with no real benefit to the Southland’s poor air quality.

The Gas Co. study, conducted by a San Francisco public policy consulting firm called M.Cubed, contends that the AQMD misjudged the benefits because it assumes the program would operate perfectly.

The AQMD “does not account for the messy behavior of firms operating in an actual market, and substantially ignored potentially ‘show-stopping’ uncertainties,” the report says.

The economists who wrote the report said transaction costs during the pollution exchanges “could double the prices predicted” by the AQMD. They said such higher prices would keep businesses from participating and the program could then fall apart.

Lents, however, said his agency’s proposal is economically sound, noting that a group of 20 economists, sociologists, business people and environmentalists, including economics experts from MIT and UCLA, helped design it. Also, experts from the Pacific Stock Exchange and Caltech helped the AQMD staff set the transaction costs.

“We have taken great care to walk through a very conservative process to arrive at the best rule,” Lents said.