The air pollution choking Hong Kong is one of the most pressing problems facing our city. Hong Kong needs decisive action to clear the air. The starting point must be reducing the pollution coming from power stations in Hong Kong, the single biggest source of pollution. Questions have been raised about the proposals the government has put forward. Simply, the government wants to penalise power companies for past sins by giving them a lower profit for investing in pollution-control equipment than they enjoy on their power stations. Who, then, should pay for cleaner air? Should it be the power companies? Or should it be those of us who use the power? The issue received considerable attention yesterday at a conference jointly hosted by the South China Morning Post and others. While there was a consensus that financial incentives should be used to make polluters pay, there is a clear rift on how to provide the power companies with incentives to help clean the air. The government's proposal to give lower profits for investing in pollution control equipment makes little sense. The priority should be to encourage the companies to help combat pollution in the future - and this requires incentives. After all, anyone who uses Hongkong Electric Holdings' service pays higher rates, which in part reflects the investment that the company has made in pollution-control equipment at its Lamma Island plant. A strict application of the polluter-pays principle must mean passing on the full costs of power supply to consumers. This includes emission reduction, as well as power generation, transmission and customer service. There is merit, however, in the government's proposal to lower the rate of return if the firms fail to meet tougher emission targets. That would provide a powerful incentive to comply with stricter emissions requirements. The government has criticised CLP Power for supplying electricity to the mainland. Running its power plants harder to supply the mainland has contributed to increased emissions in Hong Kong. Emission targets agreed with Guangdong would have been easier to reach if CLP had remained only a domestic supplier. But air pollution is a regional problem. The company has a good point in arguing that its supply to the mainland has helped Guangdong factories use fewer dirty diesel-powered generators. After all, air knows no front yard or backyard. Depending on which way the wind blows, pollution from Hong Kong could affect Guangdong, and vice versa. Rather than taking CLP to task, the government should be working with the company - and Hongkong Electric - to develop a programme whereby Hong Kong's generating capacity could be harnessed to provide cleaner power to help Guangdong relieve its shortage. Because local consumers paid for the two companies' Hong Kong-based generators in the first place, there is every reason for them to take a share of the profits from supplies to the mainland. Indeed, the existing scheme of control that governs power companies' profits already provides for that. The government should also re-examine the issue of integrating the Hongkong Electric and CLP networks. The government's decision to reject the interconnection option several years ago remains unconvincing. The government and the two power companies are currently locked in serious negotiations over how the utilities will be regulated beyond 2008. While the eventual agreements between them will apply only to Hong Kong, their impact on the environment will be regional. It is therefore important that their cross-border implications be fully taken into account. There is a need for environmental policies on either side of the border to be more closely integrated. That is likely to require some action from Beijing. At stake is not just the health of people who live and work in the region, but also its economic vitality.