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S. CALIFORNIA OKS `SMOG EXCHANGE' PROGRAM

Officials charged with cleaning up the nation's filthiest air approved a landmark "smog exchange" for Southern California in which dirty companies buy pollution credits from cleaner firms.

By an 8-1 vote Thursday, the South Coast Air Quality Management District ordered its staff to spend a year designing the program. The board would later give final approval.Henry W. Wedaa, chairman of the district board, said the smog exchange taps into the "entrepreneurial ingenuity" of businesses to clean up the air and is cheaper than regulating individual polluters.

"The comparative flexibility of this concept of harvesting pollution makes the old approach seem rigid and costly," Wedaa said. "There's gold in that brown haze."

Mary Nichols, an attorney with the Natural Resources Defense Council, supported the exchange in principle, but objected to a provision of the plan that calls for eliminating about 40 existing or proposed clean-air rules.

"Despite all their flaws, emissions standards have gotten a lot done," she said. "We're in a very scary situation here."

Kelly Candaele of the Los Angeles County Federation of Labor said the plan wouldn't stop firms from selling their credits and moving to other states where the cost of doing business is cheaper.

Under the plan, the Regional Clean Air Incentives Market would act as a sort of New York Stock Exchange of smog for 2,800 big-polluting companies in Los Angeles, Orange, Riverside and San Bernardino counties.

Permits that have a certain value in pounds of pollutants per quarter would be issued. Businesses that pollute less than allowed by permit could sell excess credits to dirtier companies.

Each year, the stock "value" would shrink, forcing companies to reduce their emissions of hydrocarbons and nitrogen oxides - key components of smog.

The board would restrict trades if they threatened to concentrate pollutants in violation of air quality standards or during periods of peak pollution, such as during the summer ozone season.