If Maryland adopts a proposal to allow companies to buy, sell and bank pollution rights, the state will be moving into largely uncharted territory full of potential snares.
The Maryland Economic Development and Community Administration recently asked the state's General Assembly to approve a pollution rights program as a way to attract new industry to the area.
Only a few areas so far have adopted similar plans and in none has there yet been any active trading in the new air-rights market-place. But early experience suggests a wide range of complex issues facing pollution-rights pioneers, including what the state does with any credits that fall into its hands, how prices are established and tax treatment of the trades.
Although mapping out a policy may be difficult, the alternative is a choice between unliveable cities and a moratorium on economic growth is established areas, according to supporters of the policy.
So far, similar plans have been adopted in California's bay area, Seattle and in Louisville, Ky., which has the oldest program. The Jefferson County-Louisville Air Pollution Control Board has 1,021 tons of particulates (sulfur dioxide and hydrocarbons) in the bank -- not a vault full of black, billowing clouds but a ledger of computer printouts used to keep track of credits and withdrawals.
At least 20 additional communities are considering pollution-swapping programs, according to the Environmental Protection Agency. Maryland, if it adopts the proposed program, may be the first state to do so, although Oregon and New York also have proposals in the works.
What such programs do is allow a company that is able to make a large reduction in air pollution to sell the results of those efforts to another company that might not have the technology or the money to meet federal air-quality standards -- or to stick the credits in the bank until the company needs them itself.
Theoretically, if the practical difficulties can be worked out, such a policy reduces the costs of pollution abatement by encouraging new and expanding industries to acquire the most inexpensive pollution reductions from existing sources.
It also would reduce the amount of pollution: Every trade must result in a net reduction.
The marketplace concept is one of a series of programs that the Environmental Protection Agency "is trying to promote to reduce compliance costs and achieve ambient air-quality as expeditiously as possible," said John Palmisano of EPA's regulatory reform staff.
EPA is drafting a federal pollution-rights banking regulation that would provide guidelines for regions that choose to set up programs and make sure that they meet basic clean-air requirements.
The programs so far have been slow in getting off the ground -- in part because of their complexity and in part because they are being developed in a sluggish economy where many corporations are deferring decisions on growth.
"All markets go through these initial periods where people are reluctant to buy and sell," said Steve Seidel, deputy project manager for EPA's emission reduction banking and trading project. As trading gets underway and companies are reassured that if they sell a credit today they will be able to buy one tomorrow, business will pick up, he said.
To date most companies appear to be banking credits for their own use, as a hedge against future requirements, rather than trading them. In Louisville, for instance, where the program has operated since March 1979, there have been no buys.
The closest thing to a transaction so far, according to Michael DeBusschere who runs the bank, was when a large company traded a credit to a subcontractor it had hired to do some of its work. "Most are used internally," said DeBusschere.
In the Bay Area, a program went into effect in January but was still being "tinkered with" as late as May, according to Thomas O. Merle, vice president of the Bay Area Council, a business research group that was involved in setting up the West Coast program.
"We have a mechanism in place but we don't have a lot of experience with it," he said. A major cannery in the area is expected to move and is expected to ask for a credit, he said. That would get the program underway.
"We're finding that in a nonattainment region [a region where federal standards have not yet been met] companies are very reluctant to sell or in anyway transfer to a new source coming into the area," he said. Instead, they want to maintain a cushion for their own use.
That will pass, said Seidel of the EPA. "Land is a scarce and limited resource, but people buy and sell land," he said.
The concept that led to pollution-rights trading grew out of political concerns that stringent air quality standards might prevent economic growth in established industrial areas, according to Richard A. Liroff, a specialist on enviornmental law.
In 1976 EPA came up with an "offset policy" that allowed industrial expansion in areas where the air was below federal standards -- as long as there was an offsetting, larger reduction in pollution for every new or expanded source. Until 1979, however, companies couldn't hold onto credits for future use. It was a use-them-of-lose-them proposition.
Critics saw the EPA ban on banking "as encouraging industries to continue the operation of dirty, marginal facilities that otherwise might be closed" until they needed the offsets, according to Liroff.
Although formal banking, trading and selling programs are a recent development, trades began -- with credits sometimes marketed -- almost as soon as the offset policy went into effect.
Those instances have revealed some of the difficulties in making a program work. They include devising an administrative mechanism, certifying the reductions that create credits and making sure they are maintained, disputes between localities and between different levels of government, and tax uncertainties.
While the issues are complex, supporters of the pollution rights market concept believe they will be worked out and that we'll all breathe easier.