Is clean air good business?

Businesses all over Southern California are feeling the pinch: the pinch of a slow economy, rising operating and labor expenses, and tough environmental regulation -- especially air pollution control measures.

Many in the business community are demanding a relaxation of air quality mandates, less bureaucracy, and fewer and less aggressive regulations. They have repeatedly taken their case to the Board of the South Coast Air District, the California Air Resources Board, the legislature and the governor's office.

The environmental community is terribly concerned that progress toward acceptable air quality has ground to a virtual standstill and that expected population and travel growth will overtake past air quality improvements. We have recently witnessed the enactment of weak regulations, the repeal or delay of existing rules, and strong environmental voices on regulatory boards being replaced by appointees with little or no commitment to clean air programs.

Is there then any common ground between the business and environmental communities on clean air, or must we be resigned to an endless political and legal battle over air pollution policies?

While in recent years the points of consensus have appeared to be few, there are a number of critical areas where business and the environmental community can potentially agree on a mutually desirable course of reform.

HARNESSING MARKET FORCES

Both groups have now come to understand the advantages of harnessing market forces to accomplish pollutant emissions reductions. In other words, there is now a general recognition that there are important advantages to structuring environmental regulation so that business managers are able to profit by complying with environmental goals more quickly and more cost-effectively than their competitors. There are several mechanisms for doing this, the most prominent and promising of which are emissions fees and emissions trading programs.

However, these mechanisms will not deliver the "silver bullet" solution their most enthusiastic proponents claim for them. As our most recent experience in devising the region's emissions trading program "RECLAIM" so clearly demonstrated, market incentive programs do not necessarily deliver a reduction in bureaucracy, accounting and monitoring requirements, or create entirely market-driven systems. To the contrary, the RECLAIM program has a rule book

several inches thick and creates a highly organized, rule-bound, and closely monitored trading market in pollution rights.

Thus, while both environmentalists and the business community should work together to create market mechanisms for reducing pollution emissions, we must come to a collective understanding that these mechanisms will not serve as a substitute for regulation, but will instead become elements which allow for greater flexibility within a solid regulatory framework.

Our efforts should therefore focus on creating workable, understandable and uniform regulatory structures which incorporate opportunities for managers to use the market to gain maximum flexibility and to develop the most cost-effective control strategies.

DISTRIBUTING THE BURDEN OF POLLUTION CONTROL FAIRLY

Much of the criticism of air pollution regulation originates with businesses and industries which believe that they bear an unfair burden for emission reductions. In general "stationary sources" such as manufacturing, utilities, and refineries have historically been more heavily regulated than "mobile sources" such as trucks, airplanes, marine vessels, locomotives, and construction and farm equipment.

The exception to this pattern is the automobile, for which the state of California adopted path-breaking tailpipe emissions standards in 1990. However, the unbridled growth in automobile use -- which remains essentially uncontrolled -- threatens to overpower the effects of these aggressive automobile standards.

This lack of balance in assigning pollution control responsibilities to different economic sectors is not only apparent to regulated businesses, but is also recognized by the environmental community. It is clear that cost-effective opportunities to control pollution from transportation sources are being neglected and that regulators need to pay much greater attention to targeting reduction programs at these sources.

In fact, it is very clearly in the interests of the local business community to press for stronger regulation of these essentially unregulated, but extremely important, pollution sources. The longer regulators continue to ignore their contribution to poor air quality, the greater the pollution reduction burden will be on industry.

DEVELOPING CONSISTENT, UNDERSTANDABLE, WORKABLE REGULATION AND ENFORCEMENT

The environmental community is also concerned about the kind of regulatory inconsistency and inefficiency that business has identified as one of the most unacceptable aspects of current air pollution control programs. We are acutely aware that inefficient, unworkable, overly complex regulatory formulas add unnecessary costs and undermine clean air efforts.

Because of our own concerns, over the past year we have tracked AQMD's compliance enforcement record. Our own observations, as well as the Air Resources Board's formal audit, found it woefully substandard, inconsistent and spotty. Business is fully justified in complaining about a system in which regulators look the other way as competitors blatantly defy AQMD rules, and in which the agency fails to impose meaningful fines on violators. This results in a situation in which managers who make good faith investments and incur costs to comply with clean air regulations may be putting themselves at a competitive disadvantage.

Cheating will become endemic if the AQMD continues to relax its enforcement and compliance as it has in the last few years. This only serves to undermine confidence in the integrity of the agency and the regulations it is legally required to enforce.

Additionally, we agree with business complaints that often regulations are unfairly administered and that many of the AQMD's operations need to be overhauled. We watch year after year as special dispensations are granted and back-room deals are negotiated with those industries which have strong political clout.

Even if there is a sincere disagreement about what shape and direction regulations should take, there should be no disagreement that aggressive and consistent enforcement and monitoring of compliance is essential to maintaining a healthy business environment.

SPURRING REGIONAL GROWTH BY SUPPORTING ADVANCED ENVIRONMENTAL TECHNOLOGY

The region has been dealt a substantial economic blow over the past several years by losses in defense contracts and manufacturing capacity. The contraction of this economic foundation has affected suppliers, the armed services, and even the entertainment industries. Rebuilding the region's manufacturing capacity is considered by most economists to be essential to regaining the economic momentum needed to sustain growth.

These underlying economic needs argue strongly for our support of the region's burgeoning environmental technology industry. The premier example of this phenomenon is California's tough automobile emissions standards which are stimulating an entirely new "advanced transportation" industry in Southern California. Hundreds of entrepreneurs, from small garage operations to large defense contractors like Hughes and Allied Signal are entering the clean car and clean bus market. Nowhere do we have a stronger regional competitive advantage than in the development of clean advanced transportation technologies -- an advantage we would be foolish to jeopardize by agreeing to a weak and faltering regulatory environment.

Southern California stands to gain doubly from technology-forcing clean air regulations: We will first have the opportunity to capture the production of the new technologies they create, and then we will benefit from the emissions reductions offered by these technologies. Thus, regional policy-makers, business leaders, and environmentalists should recognize their mutual interest in creating a strong demand for environmental technologies, and then helping the region's idle defense capacity and highly trained work force capture as much of the environmental technology market as possible.

However, for this effort to be successful, investors must have confidence that the mandates which created the markets in these technologies are not vulnerable. Clean air requirements must be forcefully implemented, regulatory deadlines must be met, and the community's commitment to emissions programs must be reaffirmed to support the continued flow of investment capital and the viability of vulnerable emerging industries.

UNDERSTANDING THE REAL COSTS OF POLLUTED AIR

The air pollution debate is often like the parable of the blind men and the elephant. Those who look at the issue from different perspectives come to different conclusions about the nature of the problem and its solution.

In this vein, businessmen tend to focus on the costs of pollution control, while environmentalists tend to concentrate on the costs of dirty air. Society in general, and Southern California in particular, would be much better served if we were able to accurately weigh these costs and balance them so that what we spend on pollution control equals the avoided costs of pollution.

Unfortunately, our collective perspective has historically been, and will probably continue to be, unbalanced. It is much easier to account for the things that are easily counted (such as the cost of pollution control equipment) than it is to account for things which by their very nature are difficult to measure (such as the number to talented managers who refuse to locate in Los Angeles or the number of tourists who don't come because they perceive the region to be unhealthy and unpleasant).

Because of this, the costs of Southern California's polluted air are virtually ignored, and the region's businesses have come to believe that the expense is all on the control side of the ledger. However, it is possible to document that the health, mortality and loss of productivity penalties from air pollution are enormous. For example, researchers at Cal State Fullerton recently estimated the health and mortality costs directly attributable to the region's high air pollution levels. After accounting for all other possible factors, and using very conservative measurement criteria, they estimated that polluted air costs Southern California approximately $9 billion annually in healthcare, lost work productivity and premature deaths.

Southern California has many natural advantages which attract business, encourage tourism, and generate growth. Some of its most attractive features are its climate and natural amenities. To the extent that these amenities are marred by the region's severely polluted air, it becomes a considerably less attractive place to live and invest in. In poll after poll, air pollution consistently ranks as one of the three most disturbing features of Southern California life. These "unaccounted costs" provide a compelling reason for the area's business community to press policy-makers to endorse and move forward with programs to meet clean air standards.

Veronica Kun is a Senior Scientist with the Natural Resources Defense Council, a public interest, non-profit environmental advocacy organization, with five offices nationally.