By Peter Nulty

(FORTUNE Magazine) – Thanks to the free market, people who love clean air can now put their money where their breath is. You can buy the rights to disgorge SO2 -- or sulfur dioxide, a component of acid rain -- then sit on it in perpetuity. Here's how it works. The Environmental Protection Agency has started to distribute such permits to electric utilities as a way to cut SO2 emissions in the U.S. to nine million tons per year, beginning in January 1995; only a certain number of permits will be issued every year. Utilities that don't need their full ration can sell the excess, either privately or at auction, in one- ton increments. The first went on the block at a Chicago Board of Trade auction in March, bringing between $122 and $450 a ton. Carolina Power & Light and other utilities were heavy buyers. Private collectors included the Natural Resources Defense Council, an environmental lobby. It bought one permit, for $200, which entitled the group to information about the program, much as an activist stockholder buys one share in a company. Cleveland's nonprofit National Healthy Air License Exchange, or NHALE, plans to raise money to acquire permits and retire them. The utilities can also give away their excess permits, as Northeast Utilities of Berlin, Connecticut, did. It presented 10,000 of its allocated 150,000 tons to the American Lung Association. At the suggestion of Senator Joseph Lieberman (D-Connecticut), the association plans to use the permits as a fund-raiser premium, much as public TV gives away tote bags. Make a donation, and get a certificate like the one shown here, awarded to Lieberman for having the idea.