Reducing L.A. Smog With Market Forces

WITH the eyes of the nation looking on, regulators here will begin drafting rules for a revolutionary new trading market in pollution rights that could alter the way governments fight smog in the future.

In a historic shift, the South Coast Air Quality Management District (AQMD) last week gave initial approval to trying to clean up the nation's dirtiest air by using the financial incentives of the free-market system.

Under the plan, traditional controls on individual sources of pollution, such as refinery stacks, would be replaced by separate trading markets for three urban pollutants.

Each company would be issued a share of overall emissions in the region. The value of each share would drop annually, forcing a cleanup. Companies could meet declining limits by installing new technology, closing a plant, or buying pollution credits from other firms.

A chief motive for the move is money. Existing regulations have cut peak pollution levels here in half since the 1950s. But AQMD officials say further progress would require more expensive controls on smaller and smaller firms. They believe the new scheme could save companies several billion dollars over the next decade.

If the system doesn't work, the region's air-quality drive will be severely set back - as will the theory of using market incentives to curb pollution.

Last Thursday's decision allows the AQMD to design a market. Another vote will be needed before trading can begin, in about a year. Working out details will be tough.

While most big businesses back the idea, they are concerned where initial pollution levels will be set for each company. Environmentalists are skeptical the system can be enforced - that smog levels are being reduced, not just shares shuffled. Others worry about businesses closing plants to cash in on pollution credits.