PERSPECTIVE ON THE ENVIRONMENT : Smog Trade-Offs: Devil Is in Details : By creating a valuable commodity--marketable smog--the AQMD has also created an incentive for fraud.

“Smog futures up 2 1/2 points in heavy trading, and now the weather!”

Is this a cheerful broadcast from the years ahead or a forecast of environmental doom?

The South Coast Air Quality Management District recently endorsed a staff proposal to develop a market-based incentive approach to achieve cleaner air--the Regional Clean Air Incentives Market (Reclaim).

This proposal is seriously flawed and misleading and not likely to result in more breathable air at lower cost.

Economists have argued for years that government should set air quality standards and allow the invisible hand of the market to determine the price of clean air. Some major California businesses insist they could clean up faster and more cheaply if they were allowed to buy and sell pollution credits.

Frustrated by delays in the rule-making process and a growing business backlash, environmentalists have also seen the vision of more rigid pollution levels made acceptable to polluters by the greater freedom of the market system. When it comes to designing a program, however, success or failure becomes a matter of detail. And the devil is in the details.

In theory, the idea of placing a commodity value on emissions sounds appealing. Polluters need to recognize that our air is not free. But an elaborate system of monitoring and enforcement must be in place if the market is to operate smoothly. By creating a valuable commodity--the right to emit pollutants equaling a pound of smog for a fixed period of time--the AQMD is also creating an incentive to commit fraud. Of course there are businesses that violate their permitted emissions limits under the current system, but detection and punishment are relatively swift and straightforward.

The district proposal envisions teams of auditors investigating transaction statements, compiled by a high-tech version of a supermarket bar-code scanner that would relay information to the AQMD’s computers in Diamond Bar. Every time a can of solvent left a supply room or warehouse for use, its movement would be tracked and recorded by the air district’s computers.

This space-age technology does not come cheap. Current record-keeping and reporting methods are primitive compared with what will be needed to assure Reclaim will work. The district now employs a sophisticated computer network which, after several years of trying, is still unable to match emissions data with permit files. Nowhere in the current proposal are there any indications that Reclaim may be even more costly than the system now in use.

If Reclaim is to succeed in reducing emissions, there will be winners and losers. Some companies now doing little or nothing to clean up will be forced to either install expensive pollution-control equipment or purchase credits from other firms.

During last week’s hearing before the AQMD board of governors, several businesses and a parade of local government officials representing landfill operators and sewage-treatment plants argued that their facilities should be exempted from the program. Small businesses such as restaurants, dry cleaners and service stations are already proposed for exemptions. But every time a business is cut out of the program, the trading market becomes smaller and the opportunity for cleanup are reduced. In effect, pure economics is being made to look like old-fashioned regulation.

Reclaim has yet to propose any reliable enforcement mechanism. The current system of inspection and source testing combined with strict policy has improved our air quality. Reclaim relies on untested reporting and accounting systems where a violation must be flagged through computer files, possibly months after it has occurred.

Courts will be asked to impose penalties based on records that may in fact be inaccurate or disclaimed by the polluter. The district acknowledges that “further compliance methods and prosecution strategies should be developed . . . .this will occur during the rule-development process.” The report fails to mention that legislation is likely to be necessary to give the district new enforcement tools.

Southland residents have already paid for this bureaucratic boondoggle with tons of unnecessary pollution. During the yearlong feasibility study leading up to the board’s endorsement of Reclaim, rule development under the adopted Air Quality Management Plan has screeched to a halt. A number of rules already adopted will be suspended during the Reclaim development process.

In an unprecedented consensus, both industry and the environmental community agree that Reclaim must be superior to the existing command-and-control system. It has a long way to go and will have to go even further to gain acceptance from a broad spectrum of the affected public. Only by implementing an open-rule development process, which involves representatives of the ethnic community, the small-business sector, labor, industry and environmental and public-health organizations, as well as the state and federal agencies whose support will be necessary if Reclaim should take effect, can this program work.

The district will have to sacrifice some degree of control in order to develop consensus around a series of complex and interrelated issues. The traditional method of AQMD-written rules presented for public comment at the 11th hour simply won’t produce a plan that can persuade us to throw away 20 years of progress toward healthier and more breathable air.