THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, February 12, 1995 TAG: 9502100512
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY SCOTT HARPER, STAFF WRITER
DATELINE: RICHMOND LENGTH: Long : 101 lines
A new and powerful bank is coming soon to Virginia. But customers will not cash checks or deposit money there.
They will buy and sell air pollution - smog, to be exact.
After three years of watching several other states trade this most unusual commodity, Virginia officials announced last month in Richmond that they intend within 18 months to offer this thoroughly modern service to companies wrestling with the Clean Air Act.
The bank would be especially important for Hampton Roads, given the large number of smog-belching industries in Tidewater and the region's continuing struggle to purge its tainted air.
To most environmentalists and health experts, trading pollution credits as if they were pork bellies and soybean futures on the Chicago Board of Trade is a perverse and potentially dangerous idea.
``As someone who breathes air, it's very disconcerting to know we're about to let people buy the right to pollute us even more,'' said Nancy Summers, a spokeswoman for the Virginia Consortium for Clean Air, an environmental group.
But to many state officials and business leaders, pollution banking is a long-overdue incentive for industries to install expensive, state-of-the-art technologies that go beyond government mandates.
Only when a company cuts its emissions by more than what federal law requires can it obtain a pollution credit. And only then can a credit be sold to another company or deposited in the bank for a rainy day.
``It encourages voluntary reductions and still allows growth and economic development in areas where pollution is a problem,'' said Shawn S. King, a senior engineer at the Virginia Department of Environmental Quality. King is coordinating the commonwealth's banking program.
While the specifics of the program still must be decided, King and other officials offered the following scenario for how it is likely to work:
Company X in Norfolk wants to expand its manufacturing plant. But because the addition would emit, say, 50 tons of smog-producing chemicals a year to an already-polluted Hampton Roads sky, Company X needs help.
So it goes to the bank. There, other companies list the type and amount of surplus pollutants they have for sale - all of which the state has certified as accurate and available.
Company X would then contact a seller and negotiate a purchase to offset its 50-ton expansion.
Because Hampton Roads is a ``moderate'' smog zone according to federal definition, Company X would need to offset 115 percent of the pollutants it will create by expanding. That means it must buy about 62 tons of credit.
Once a purchase is made, Company X could then submit an application for an air-quality permit, which the state would review and probably issue.
Another option would be for Company X to hire a ``pollution broker,'' who would find and negotiate a deal for sufficient credits. The broker is paid a fee for his or her services.
In trading to date, in banking states such as New Jersey, Connecticut, Massachusetts and Texas, the hottest pollutant has been volatile organic compounds, or VOCs. Typically spawned from solvents and paints, VOCs are one of the two building blocks of smog.
When mixed under intense sunlight with nitrogen oxide, or NOx, a byproduct of burning fossil fuels, smog forms. Known technically as ground ozone, smog threatens respiratory health, especially among children and the elderly.
A credit for one ton of VOCs sold for an average of $2,500, according to banking statistics for 1993. A ton of NOx went for an average of $1,000, the same statistics show.
At a public meeting last week in Richmond, about 20 lawyers, corporate officials and would-be brokers gathered to offer their suggestions for Virginia's future bank. No environmentalists attended.
Almost unanimously, they advocated an ``open market system'' in which the state would have little control of trading or banking operations.
They asked for the freedom to trade across state lines - which King said was almost a certainty - and for companies to win credits for anti-smog equipment installed from 1991 to the present.
There was even talk about ``pollution insurance.'' As described by Chuck Linzell of Commonwealth Gas, companies could buy temporary credits as insurance against smog violations during risky times.
Such ideas are expected to draw opposition from environmental groups, which want a tightly controlled bank run by state government.
The Virginia Consortium for Clean Air has expressed fears that without close regulation, bogus accounting schemes may surface to inflate the amount of pollution credits that companies buy and sell.
``This has the potential to easily get out of hand,'' warned spokeswoman Summers. ``We need to ensure that these credits are real, that they're surplus pollutants and that they're permanent. Otherwise, you can get a lot of paper changing hands, and our pollution levels will only go up.''
For King, the state banking coordinator, the big concern is not fudged accounts. Rather, she worries about credits being used all at once by companies during a particularly smoggy season. The result could be pollution readings that go through the roof.
``Kind of like a run on a bank,'' King said. ``If we get a bad summer, for example, everyone could apply their credits at the same time, and we could see some violations.''
Such issues will be hashed out by a special committee that will meet throughout the year. By 1996, the committee will make recommendations to the state Air Pollution Control Board, which will have the final say over how the bank works and who controls its daily operations. ILLUSTRATION: JOHN CORBITT/Staff
by CNB