Battle over pollution credits sparks legislative, legal fight

The dispute between environmentalists and the South Coast Air Quality Management District has been overshadowed by public attention to the state budget meltdown, the special election and new federal fuel-economy standards. But it is developing into one of the year’s most important air-quality battles, pitting hundreds of local businesses and governments against environmentalists.

A legal battle over halting air-quality credits in the smoggy Los Angeles basin that ended in a court victory for environmentalists has shifted to the state Capitol.

The environmentalists’ core contention: The AQMD has banked and distributed emissions credits through a system that favors major polluters. The district rejects the allegation.

At stake are $4 billion, 65,000 jobs and hundreds of stalled projects, according to the district, which dispensed the permits.
Senate Leader Darrell Steinberg, D-Sacramento, has urged the governor and Air Resources Board Chairwoman Mary Nichols to intervene in the dispute. Legislation authored by Sen. Rod Wright, D-Inglewood, to block the environmentalists was hastily withdrawn from a scheduled committee hearing, a signal that negotiations loom. Indeed, the bill was deliberately yanked on the orders of Steinberg in order to force face-to-face negotiations, Capitol sources said.

Wright’s bill, SB 696, would exempt much of the district’s handling of emission credits from the state’s principal environmental law, the California Environmental Quality Act.

 A full-press lobbying and communications effort has sprung up to back Wright’s bill, headed by the SCAQMD and the Los Angeles Unified School District, and including cities, labor organizations, the oil industry, chambers of commerce and others.

A key player in the Capitol dispute is Richard Polanco, a former lawmaker and now lobbyist for the AQMD, which has jurisdiction over Los Angeles and portions of Orange, San Bernardino and Riverside counties, and some 161 cities.

At issue is a 2008 court ruling that blocked the method by which the AQMD dispenses emission credits –  permission slips that allow an entity, such as a power plant or a factory, to operate and emit pollution.  Entities that do not pollute are credited with their performance, and those credits can be obtained by those who do. The goal is to meet clean-air standards while maintaining economic health – a difficult balance.

The AQMD said the Nov. 3 ruling by Los Angeles Superior Court Judge Anne Jones effectively froze projects, both public and private. “The affected facilities include essential public services, such as sewage treatment plants, hospitals, schools, and landfill gas renewable energy which would generate about 150 megawatts,” the district contends. Officials added that Jones’ decision weakened a sagging economy and crippled a system that had been created to cut pollution.

They said the district could adopt a new rule and submit it to review under the state’s environmental law, but that would take months to complete, and “there is not enough time for such an approach.  The rule adoption would likely take an additional 9-12 months, and potentially more than another year to resolve the inevitable litigation.”

But environmentalists, led by the Natural Resources Defense Council, argued successfully that the district had dispensed invalid pollution credits to a myriad of polluters and energy companies, and had made money to boot. The group contended that many of those who got the credits  — which were intended for essential public services like schools and hospitals – actually went to entities with the ability to obtain the best air-quality control technology available and could pay large amounts for the credits.

The AQMD has appealed Jones’ ruling.

The dispute appears to be getting increasingly heated.

Thwarted thus far in court, the district has launched a major lobbying effort to obtain legislation that would dismantle Jones’ decision, while the environmentalists have filed another suit – this one in federal court — challenging the legality of the district’s handling of the emissions credits.

The AQMD board, meanwhile, feels its getting unfair treatment from the new Obama administration and complained about pending federal rules requiring tight tracking of AQMD emission credits.

“Most importantly, they give false support to a lawsuit that is crippling business and governmental projects to control air pollution in Southern California,” AQMD board chairman William Burke wrote in a May 7 letter to the U.S. Environmental Protection Agency.

Burke described the federal action as “unfairly slanted,” and attacked the EPA for acting “without even the most basic courtesies.”
 The mom-and-pop and smaller entities long had been the focus of the emissions credit program, but in 2006 the district altered its rules to include power plants – a move that drew fire from environmentalists.

Steinberg favors an emphasis on the mom-and-pop businesses and wants that included in any changes to SB 696. Environmentalists concur, while the AQMD seeks to retain the power plant component.

The NRDC believes the district has been fudging the emissions credits, pegging the number of credits to the number of businesses that had closed and therefore were not operating. If they weren’t operating, they weren’t polluting, and therefore they could be included in calculating credits that could be sold or given to existing companies.

“They would go after these ‘orphan shutdown credits,’ said David Pettit, a Santa Monica-based attorney for the NRDC. “A little facility that never got any kind of permit, they’d go out of business and the district said, ‘We are going to assume that those little businesses had credits and we are going to credit ourselves with those credits.”

Certain kinds of emission reduction credits can be worth more than gold – far more.

Credits for a relatively small power plant in Anaheim, for example cost $320,000 per pound of particulate matter pollution, or $16 million on the open market, AQMD District Counsel Barbara Baird said. The credits can be purchased by anyone who can afford them. In the Anaheim case, an investor bought the credits, then sold them to the Orange County plant and pocketed a $5 million profit, Baird said.

“Before the judge’s decision, it would have gotten them for free,” she said, by approaching AQMD.  She said the AQMD’s board is considering whether there should be restrictions on investor-type credits.

Environmentalists contend that one aspect of the district’s policies was to create emission credits that were sold at below-market value to polluters.

In 2005, certain kinds of pollution credits were worth about $100,000 per pound. Now the price is $200,000 at the low end, according to one environmentalist, and far higher depending on need and classification.

“We have concerns about issuing credits to power plants without doing a more comprehensive plan to promote renewable energy in California,” said Bonnie Holmes-Gen of the American Lung Association. “Everybody recognizes that essential public services need to get permits.”

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