Midwest Puts Clean Air on Auction Block

The Chicago Board of Trade will start auctioning pollution allowances today, kicking off a hotly debated scheme that seeks to use marketplace forces to reduce air pollution.

Under the Clean Air Act, utilities and industries that exceed federal emissions standards can sell pollution allowances to others that do not.

Each allowance gives the holder the right to each year emit one ton of sulfur dioxide above the restrictions mandated under the act.

It is a system that aims to create economic incentives for cutting sulfur dioxide emissions in half by 2000. Such emissions are widely blamed as the leading cause of acid rain. Critics, however, say Midwestern utilities will still be able to spew pollutants by buying rights instead of installing expensive scrubbers to clean their dirty stacks.

But Board of Trade executives, constantly on the lookout for tradable commodities, believe they hit on a viable contract when they won the right to administer the first annual auction.

The exchange plans to offer futures contracts later this year based on the fluctuating value of the allowances.

By using the contracts, utilities could lock in a price for an allowance they might need sometime in the future.