Market Plan Set to Clean Up L.A. Smog

FROM wood-paneled boardrooms to dusty cement factories, preparations are under way here for an experiment in cleaning up smog that will be watched across the country and around the world.

On the microscope slide: a ``smog market'' in which industries will buy and sell pollution credits like soybean futures.

The revolutionary but controversial plan, approved in October and set to take effect in January, will test the ability of the marketplace and competition to help curb pollution.

Regulators and big business believe it will be effective - and save money. But smaller companies and environmentalists remain dubious.

If successful, the scheme would buttress a growing movement to use marketplace incentives to spur environmental cleanup of all kinds, something other cities, the federal government, and countries like Britain and Germany are interested in.

If not, it will severely set back Los Angeles's efforts to take Windex to the nation's dirtiest skies.

``In my opinion, it is one of the big gambles with air-quality policy in the industrialized world,'' says Larry Berg, a former board member of the South Coast Air Quality Management District (AQMD), the agency that oversees pollution control in the four-county Los Angeles area and which approved the plan. ``I hope it works. But the jury is still out on whether it will.''

The Regional Clean Air Incentive Market, or RECLAIM, as the program is known, involves 390 of the biggest polluters in the Los Angeles area. These are the companies that emit more than four tons a year of nitrogen oxides or sulfur dioxide, two key ingredients of smog.

Each year a limit will be set on the amount of pollutants each company can produce. The limits will be reduced 5 to 8 percent a year over the next decade. By 2003, that should result in a cut in nitrous oxide emissions of 75 percent and sulfur dioxide of 60 percent.

Companies can reduce their emissions however they choose. Those that cut pollution more than required can sell credits to companies that cannot easily meet their target.

Currently, businesses are forced to install pollution controls on each piece of equipment. The theory is the market approach gives them the flexibility and financial incentive to tidy up stacks.

``Instead of the minimum controls, they will now likely pick the maximum controls,'' says Robert Wyman, a lawyer who represents a group of refiners, aerospace firms, and other large companies.

The idea has been tried elsewhere on a smaller scale. The federal Clean Air Act allows pollution trading among utilities that emit sulfur dioxide, a source of acid rain. RECLAIM extends the concept to a bigger universe of companies and adds nitrous oxides to the market.

Boosters of the scheme, including big oil and aerospace companies, say they believe it will lead to desired reductions in air pollution while saving firms money and the economy jobs. The AQMD estimates participating companies will spend $58 million a year less to clean up the same emissions than they would have under the old system.

The promise of producing cleaner skies while inflicting less pain on business was a major reason behind the adoption of the market approach. Improving the business climate in recession-mired California has become a political mantra.

The AQMD, and its myriad rules affecting everything from backyard barbecues to bakeries, has been at the top of corporations' grievance list. In this political climate, some have questioned whether the AQMD would be able to continue to adopt the conventional emission controls needed to bring the region's air quality up to federal standards.

Still, RECLAIM stirs controversy of its own. Smaller businesses in the market worry that it will mean additional record-keeping and other burdens. Most environmental groups, while agreeing with the concept of an exchange, don't like the way this one was fashioned. They think the starting pollution limits are too lax.

They also rebel at the idea that big firms will be able to earn credits by doing such things as scrapping old cars or retiring polluting vehicles from their fleets - moves, critics say, that might have been done anyway. Concerns persist on whether emissions can be monitored accurately and on the degree of public involvement.

``This takes decisions about decreasing pollution out of the hands of the public and puts them solely in the hands of companies,'' says Jim Jenal of Citizens for a Better Environment (CBE), an environmental group that wanted to start with a smaller pool of firms.

CBE may file suit to block the program. AQMD, for its part, wants to expand RECLAIM next year to include hundreds of companies that emit hydrocarbon pollutants - which means the politics of smog- busting is far from over.