One of the great stories that parallel electricity deregulation in California was the birth of the smog credit trading market in greater Los Angeles. Environmental regulators embraced California's move toward deregulation in 1990 when Congress amended the Clean Air Act to unleash market forces into the nation's air pollution cleanup program. Long before anyone gave a thought to greenhouse gases, Congress believed that the incentives of the economic marketplace could be harnessed to end the problem of acid rain. Not surprisingly, electric utilities played a major role in infusing market economics into environmental policy. That clean-air law set up a flexible cap-and-trade program to reduce sulfur dioxide emissions from power plants. Soon, air pollution control regulators in the Los Angeles area - the nation's smog capital - began investigating how to emulate the national program to clean up urban air pollution in their own backyard. Their interest coincided with utility deregulation studies by state energy regulators. By 1993, the South Coast Air Quality Management District - the L.A. area's smog-fighting agency - adopted rules to establish the RECLAIM (or Regional Emissions Clean Air Incentives Market) program. SCAQMD promised that the program would "reclaim" healthful air for all Southern Californians. RECLAIM established caps on plant operators that declined each year. Operators that could reduce pollution below their annual caps could sell the resulting excess emissions credits to those who chose not to meet their caps. As long as every operator had enough credits to cover their emissions, air regulators could be assured that RECLAIM would reduce emissions each year until the air was clean. Before recounting the woeful story that followed and speculating on where it may lead in the next ten years, it is only fair to disclose a bit of my own past when it comes to deregulation. My involvement in deregulation began in the chambers of U.S. District Court judge Harold Greene in 1982 when he handed down the decision to break up AT&T, a.k.a. Ma Bell, into the Baby Bells. I was a young news reporter in Washington, D.C., at the time, assigned by my editor to cover the decision. I went on to cover the birth of the regional telecommunications firms that grew out of that momentous decision. A few years later, I shifted from reporting on telecommunications to writing about environmental policy. Then I returned to my native California in 1988 to become spokesperson for SCAQMD. By 1992 it became my job to defend SCAQMD's deregulation of major polluting industries, such as utilities and oil refineries, by substituting market forces for "command and control" rules. It was a sweaty job from the start. It remained so until the day I left the agency in 2001. When it came to air quality, regulators at SCAQMD envisioned that market forces would create powerful incentives for developing new clean-air technologies. They envisioned a future powered by electricity produced by ever-cleaner technologies, such as solar thermal power plants, rooftop photovoltaic systems, and other renewable sources. The air would finally be healthful for all. Catalina would always be visible from the foothills of the San Gabriel Mountains. SCAQMD had firm rules on the books requiring that the power plants throughout much of Southern California install state-of-the-art pollution controls by the mid-1990s. These controls effectively would have required plant operators, at the time mostly Southern California Edison and the Los Angeles Department of Water & Power, to repower their plants, not only reducing pollution but making them more efficient and lengthening their useful lives. However, when SCAQMD adopted the RECLAIM program, it substituted a system of flexible limits for the hard-and-fast emissions reduction deadlines of these command and control rules. As the program began in 1994, under pressure from business, SCAQMD handed out grossly inflated quantities of credits to power plant operators and other industries. With the picture of electricity deregulation then emerging, Edison could foresee that it might eventually unload its plants, so why spend billions of dollars to clean them up? No surprise that Edison was a major supporter of RECLAIM. Soon the company sold its plants to out-of-state merchant generators, unloading a major pollution control liability. As the new companies took the reins, air pollution credits were the last thing on their minds, particularly by the time the energy crisis hit California in 2000-01. As the companies worked their aging plants overtime to provide power and make a handy profit, their caps finally had declined to the point where their surplus credits had evaporated. Power plant operators bought all available credits on the open market, causing their price to soar. Meanwhile, other businesses also had waited to clean up their plants. Suddenly, it seemed, just about everybody was emitting more than allowed under the RECLAIM program. With its back to the wall, SCAQMD had no choice but to let the power plants continue to exceed their emissions limits lest the air quality agency be held responsible for letting the lights go out. The agency fined AES and LADWP but let the others off as long as they agreed to install controls on negotiated schedules that the old command and control rules would have required in the mid-1990s. To make those extensions legal, the agency amended its rules to temporarily remove power plants from the RECLAIM program. Now they are back in the program, and as the demand for power increases, SCAQMD has again buckled to the energy industry. This time it is allowing generators to tap a pool of credits it typically reserves for public services, such as sewage treatment plants and police and firefighting operations (Circuit, Sept. 8, 2006). Later in January it likely will extend access to these credits to new oil and liquefied natural gas facilities on the grounds that the state is facing another energy crisis. SCAQMD sure doesn't want to contribute to it, having been burned in 2000-01. So after 13 years of market forces in Southern California air-quality regulation, the question remains: Just where is Catalina, anyway? The promise of unlimited vistas and healthful air for one and all has yet to materialize. Instead of ushering in the birth of the renewable energy and clean air economy, market forces have again forced environmental regulators to staff the presses to print up new emissions trading credits that will enable the region to burn more fossil fuel, the number-one cause of air pollution. But even this will not supply enough credits. As the expanding population creates greater potential for fossil energy company profits, SCAQMD will be under increasing pressure to find innovative new ways to pump more credits into the RECLAIM market. The possibilities are to create credits by cleaning up so-called mobile sources - cars, trucks, ships, trains, planes, and the like - and to make the resulting credits available for the expansion and continued operation of fossil fuel-based industries. It will stymie renewable energy companies too, because in effect the policy to allow more fossil fuel to come into Southern California is a form of public subsidy to traditional energy industries; so much for economic justice and a true marketplace. I expect SCAQMD to position itself as a champion of green energy by using some of the money it gains from making credits available to fund a limited number of renewable energy projects. The projects will provide photo opportunities and a useful fig leaf for an agency dominated by fossil fuel interests. Here in greater Los Angeles, I'll just have to keep looking for Catalina.