ANOTHER SETBACK IN THE EFFORT TO RECLAIM OUR AIR.

Byline: Eric J. Heikkila

Board members of the South Coast Air Quality Management District voted recently not to expand their "pollution market" known by the acronym RECLAIM, or Regional Clean Air Incentives Market.

In so doing, AQMD Board Chairman Jon Mikels acknowledged that the program has suffered from a lack of support on all sides. Given the collapse of political support for this innovative market-based approach, we must not act in haste to throw out the baby with the bath water - however polluted that water might be.

It is important for all parties to understand that the problem is not with a market-based approach, per se. Rather, the problem lies primarily in the distribution of entitlements within that market.

To many readers, the very notion of pollution entitlements must surely be puzzling. After all, if the mission of the AQMD is to clean up the air, why does it turn around and sell companies the right to pollute?

The answer is that pollution entitlements are assets, and markets are known to be relatively efficient mechanisms for redistributing an existing set of assets.

No company wants to pollute. But emissions of nitrogen dioxide or sulfur dioxide are by-products of chemical processes that are commonly used by manufacturers of furniture, electronics and a host of other businesses.

Pollution entitlements are a necessary input into these production processes, much like labor, equipment and real estate. We could simply ban all noxious emissions, but the consequence (if enforcement were truly possible) would be a dramatic and unacceptable increase in the cost of furniture, electronics and the many other goods whose production is greatly facilitated by the right to emit pollutants into the air.

Thus, we are faced with the uncomfortable reality of a trade-off between more polluted air vs. more expensive manufactured goods. This trade-off is reflected in the price of pollution entitlements.

Why then has RECLAIM lost political support on all sides? The problem lies with the initial distribution of pollution entitlements. If the entitlements are allocated too much in favor of manufacturers, then manufacturing costs will be relatively low, but air quality will be unacceptably polluted.

On the other hand, if too few entitlements are made available, then their scarcity will be reflected in the prices that manufacturers are required to pay when purchasing those entitlements. Air quality will improve, but the cost of manufactured goods will rise.

As it stands, the two sides are too far apart. No level of entitlements will provide us with the air quality we seek at prices we are prepared to pay. The entitlements market is not to blame for this dilemma.

In fact, we, the public, are the ultimate culprits because we insist on having our air quality and eating it, too. The situation can only be exacerbated by dismantling a mechanism that copes with our conflicting demands in the most efficient way possible.

As a result of the recent action by the AQMD Board, we are now further away than ever from RECLAIMing clean air.