AQMD's rules on trading smog credits are set to get an overhaul.

The regional government body charged with monitoring and enforcing the cleanup of the Los Angeles Basin's notoriously dirty air is in the process of cleaning out its own rule book and simplifying regulations on the trading of so-called "pollution credits."

Broad outlines of a proposal to streamline the credit system were scheduled to be presented to the South Coast Air Quality Management District's governing board at a two-day meeting late last week. And an AQMD spokesman said the proposal could be approved by the board as early as January. If that happens, companies in the AQMD's jurisdiction would be able to sell or buy emission credits on a much larger scale than they can now.

The current AQMD trading system is labyrinthine in its reach and scope. The district regulates 30,000 companies in 12,000 square miles of Southern California - an area that includes all of Los Angeles and Orange counties and most of Riverside and San Bernardino counties.

"Anything that produces emissions in our area is subject to AQMD regulations," said Chung Liu, the AQMD's director of planning and policy.

Those 30,000 companies are segregated by the AQMD into five groups, according to the amount of airborne pollution each company produces a year. At one end of the scale is a group including the region's manufacturing plants and refineries that produces more than four tons of pollution per year. At the other end of the scale are service companies, such as banks and law firms, whose main polluting comes from their employees driving to and from work.

In all five groups, the AQMD has identified two broad categories of pollution production. So called "mobile" pollution sources, such as a fleet of trucks, and "stationary" sources of pollution, such as an oil refinery.

And if that is not complicated enough, there are also three different types of emission credits used by members of the five programs.

Credit accumulation

Credits are earned when a company cuts emissions by more than AQMD regulations require. And those credits can be sold to a company that may be having a hard time reaching its emission targets. But the system is not working well.

"It's not an efficient market right now," said Liu. "It's segmented and inflexible."

At the moment, each of the AQMD's programs are like countries with restrictive trade laws. There's trading within programs but little trading between programs. But under the proposed system, those barriers to trade would be lifted. And the current three types of emission credits would be rolled into one new one, the Universal Trading Credit.

"The UTC is our version of the Eurodollar," said Liu. "It's much more efficient to have a single currency than many different ones."

In a UTC-based system, much broader trading of emission credits between programs would be allowed, said Liu. And that, said one industry lobbyist, would, in particular, vastly expand the sale of credits generated from mobile sources to owners of stationary sources of pollution.

Mobile-source credits have proven easier to attain than stationary-source credits, said Bob Wyman, an environmental law partner at Latham & Watkins and an advocate for two major polluter coalitions in the Los Angeles Basin. But an oversupply of them in an inflexible market has caused a trading logjam.

"Right now there's not much reason for folks in the transportation sector to convert their fleets to cleaner-burning vehicles. There's little or no market for any credits they generate," Wyman said.

But a larger, less-regulated market for emission credits would create new incentives for his clients - which include Southern California Edison and Maguire Thomas Partners - to purchase alternative-fuel vehicles for their fleets because the emission credits they could gain from such a purchase would be far more marketable.

"Regulations are a pretty blunt instrument," said John Kirlin, a professor of public administration at the USC campus in Sacramento and an expert on air-quality public policy. "And the AQMD is now having diminishing returns, as far as reducing stationary source and tailpipe emissions."

A spokesman for the U.S. Environmental Protection Agency's regional office in San Francisco agreed with Kirlin's assessment: "Diminishing returns are a particular problem for the AQMD's region," said Ken Israels, an economic incentive program coordinator for the EPA. "They've had a lot of success with some strict controls, but now they need some more innovative tools."

Unknown results

"We're not opposed to such programs, per se," said Linda Waade executive director of the Coalition For Clean Air, a Los Angeles-based public interest group that lobbies for stronger cleanup efforts. "But the jury's still out on how effective they are."

Waade said she's particularly concerned about the prospect of allowing credits trading between mobile and stationary sources of pollution. Mobile sources account for up to 80 percent of the 8,000 tons of airborne pollutants dumped into the air every day in Los Angeles, according to the AQMD.

Waade said she worries that the sheer number of the area's mobile polluters including some 10 million cars, trucks, trains, ships and planes - would render a broad-scale emissions-credit trading program unworkable.

"It's hard to monitor and even harder to enforce," said Waade.

However, local business leaders pointed out that Waade's worries come at a time when current EPA figures show the air in Los Angeles is cleaner than ever. So far this year, there have been only 13 Stage One smog alerts in the Los Angeles Basin. In 1985, there were 83, and 10 years before that, there were nearly 120. A Stage One alert is declared when the concentration of ozone in the atmosphere exceeds 0.20 parts per million. At that point, the air is considered officially "very unhealthy."

"The coalition applauds the progress made here," said Waade, "but it's been made because we have tough regulations. Now is not the time to relax, but to push forward."

EPA officials asserted the relevant issue is not how the AQMD reaches its federally mandated goals for air quality, but when. By 2010, the federal Clean Air Act requires the air in Los Angeles to never exceed 0.12 of one part of ozone per million parts of air.

"As long as the program is satisfying provisions of the Clean Air Act, and as long as the AQMD meets its deadline for compliance in 2010, I don't think market-incentive programs can be seen as a problem," said the EPA's Israels.