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The discussion of how to manage air‐quality in a heavily polluted area like Los Angeles (LA), California, in an era of shrinking public budgets and a trend towards deregulation has led to the introduction of a new environmental policy tool: a tradeable emission permit approach (the so called RECLAIM‐program) to reduce SO_x‐ and NO‐emissions from stationary sources was introduced in 1994. This paper is an attempt to analyze and evaluate the first three years of the program, based on the official three year program audit (SCAQMD, 1998) and on a written company survey and personal interviews with experts, as well as administrators active in air quality management in Los Angeles (conducted by the authors between May 1996 and May 1998).