In First DOE Trade, 2 Utilities to Swap Air Pollution Credits : Environment: Arizona Public Service, Niagara Mohawk Power expected to exchange credits on carbon dioxide, sulfur dioxide.

In the first trade of its kind, Arizona Public Service Co. and New York’s Niagara Mohawk Power Corp. have agreed to swap air pollution credits in a deal that could be a model for the way the world reduces emissions of carbon dioxide and other greenhouse gases.

The agreement, expected to be announced today in Washington, calls for the exchange of credits in carbon dioxide and sulfur dioxide between the two utilities. The exchange is designed to help both companies meet air pollution standards agreed to with the Department of Energy.

The exchange illustrates a new flexibility in the growing marketplace in pollution credits--a trade that increasingly operates much like those in pork bellies and other commodities.

The move is “a pathfinding development,” said Richard L. Sandor, a pioneering market designer at the Chicago Board of Trade, now chairman and chief executive of Centre Financial Products, in New York.

The agreement is expected to be unveiled by Energy Secretary Hazel O’Leary under the department’s Global Climate Challenge program. That program developed from the Earth Summit held in June, 1992, in Rio de Janeiro, at which the United States agreed to reduce carbon dioxide levels to 1990 levels by the year 2000.

The basic idea of pollution-credit trading is to give polluting industries flexibility in the way they meet stricter emissions standards. Under provisions of the federal Clean Air Act, as well as voluntary agreements such as the Department of Energy program, polluting businesses must lower their emissions to certain levels within certain periods.

If the business lowers its emissions even more--by using cleaner-burning fuels or better technologies--they create credits, which can be sold to other businesses, which in turn may use the credits to meet their clean-air obligations.

In any event, because emissions standards still get tougher year by year, the total quantity of pollutants in the air decreases steadily no matter how the credits are traded between the polluters.

This latest swap is “really a foundation for greenhouse-gas trading,” said Daniel J. Dudek, a senior economist at the Environmental Defense Fund, which helped negotiate the agreement and will also sign it.

Niagara Mohawk has accumulated excess carbon dioxide credits by switching to cleaner-burning fuels and promoting energy conservation.

Arizona Public Service reached an agreement four years ago to reduce haze over the Grand Canyon, caused in large part by another pollutant, sulfur dioxide.

The Arizona utility earned excess sulfur-dioxide credits when it and other owners of the Navajo Generating Station in Page, Ariz., agreed to install scrubbers to remove sulfur dioxide from the plant.