Environmentalists have field day with smog credits; but market experts predict potential trading bonanza.

A trading market where local businesses can buy and sell smog credits in order to comply with clean air rules is not good public policy and ignores the demands of local citizens, an environmentalist charged last week.

Currently, the South Coast Air Quality Management District, the Pacific Stock Exchange, the California Institute of Technology and others are creating a trading market for pollution rights as part of the district's complex Reclaim -- or Regional Clean Air Incentive Market -- unveiled last year. Under the current market proposal, an estimated 500 local companies -- downscaled from a formerly estimated 2,000 companies -- will be allowed to buy and trade smog credits, which will be awarded by the AQMD to companies which reduce pollution levels or buy technology to clean up their smog.

The credits, which would resemble a commodities contract, could then be sold to companies which can't meet AQMD emission limits, so they can continue operating and polluting.

"When you talk equity, (smog credits) don't take it to the streets, they will laugh in your face," said Jim Jenal, director of the clean air program in L.A. for Citizens for a Better Environment. Jenal made his remarks last Wednesday to at least 100 attendees of an L.A. conference on Reclaim.

At least 25 protesters, environmentalists and representatives from a labor group, picketed in front of the conference site on Tuesday and then marched to the Pacific Stock Exchange calling it the "Pacific Smog Exchange" to protest the smog credit market.

"Suspending rules and going with a market -- who has a say in what goes on there?" said Jenal. "By going with a market-based approach, you leave the public out and they don't have a say. I don't believe that people are willing to trade away their voice over to a market system which will determine how, when or if the local facilities will clean up their act."

The environmental group charges that the ability to sell pollution rights would increase toxic "hot spots" in some areas, primarily low-income neighborhoods, because some pollutants will not be traded in the market. They also charge it will accelerate plant closures and local job loss.

Jenal said by purchasing smog credits, a company could emit more pollutants. He called the credits a "brown parachute," and charged the market is not "good public policy."

However, Mary D. Nichols, senior attorney with the National Resources Defense Council, argued that companies "already treat pollution permits as economic assets. Companies are sitting on these rights and treating them as valuable. Reclaim puts a price on those permits and moves them out" into a trading market.

During a panel discussion on making the smog trading system work, Carlton W. Bartels, a director with New York-based brokerage Cantor Fitzgerald said his company is already interested in trading the smog credits.

Cantor Fitzgerald currently trades Environmental Protection Agency emission allowances associated with the 1990 Clean Air Act. Cantor trades these so-called "acid rain credits" on a computer-based market through its newly created Environmental Brokerage Services division in New York.

"This is a growth area and we are in it for the long haul," said Bartels. "For us to list Reclaim credits would be like listing another stock. We are confident we would recover any costs and make profits."

While AQMD is still hammering out details of the trading market and the final Reclaim rules and an environmental impact report is expected this week, panelists agreed the smog credit trading market will work. But they felt it would be a centralized market with few trades, and the trading commodity - the smog credits themselves - would decrease over time. This computer-assisted market will present instant access to buyers and sellers, maximum opportunity to trade and lower transaction costs, predicted Bartels.

However, environmentalist Jenal argued that the trading market is just a way for accountants, brokers, the stock exchange and lawyers to make a buck from air pollution clean-up.

"Greed is not good, but I think we've seen a lot of it associated with this program," said Jenal.