(FORTUNE Magazine) – OZONE, A VARIANT of the oxygen we breathe, is the Jekyll and Hyde of the atmosphere. At ground level, where it is a pollutant from smokestacks and tailpipes, ozone contributes to smog. But in the stratosphere, a layer of naturally occurring ozone beneficently prevents the sun's dangerous radiation from reaching the earth, where it can cause skin cancer, eye cataracts, and crop damage. Alas, while there is no quick way to rid cities of ground-level ozone, industry has unwittingly come up with a family of compounds that strip ozone from the stratosphere. According to most experts, a group of widely used chemicals called chlorofluorocarbons (CFCs) is eating away at the ozone-in- the-sky, heavy oxygen molecules made up of three atoms instead of the usual two. New data show that the ozone layer is eroding, not just in the Antarctic -- where climatic conditions in the summer create a hole the size of the continental U.S. -- but over nearly the whole globe. Worries about ozone are rallying international support for limits on CFCs. A treaty signed in Montreal last September by 24 countries, including the U.S., calls for restrictions on CFC production starting next year. That prospect is prompting the world's largest CFC makers to invest millions of dollars in the search for less harmful substitutes. American, Japanese, and European chemical makers are experimenting with everything from exotic CFC formulations that do not break down atmospheric ozone to compounds derived from petroleum distillates and even crushed orange peel. In addition to such U.S. producers as Du Pont and Allied-Signal, England's ICI, West Germany's Hoechst, and Japan's Asahi Glass are hustling to develop and patent new production processes for their experimental CFC replacements. All the new compounds must pass rigorous toxicity testing. Those that do will likely be costlier and harder to use than the CFCs they replace.

The risks in the race for substitutes are high: Many of the most promising candidates are five to ten years from reaching the market. Before then, chemical makers will have to spend hundreds of millions of dollars on factories and production equipment to manufacture the substitutes. But the winners stand to score enormous gains in an industry that has been stable for decades. Says Marilyn Montgomery, head of Allied-Signal's CFC division: ''This used to be a straightforward commodity business. Now it's a risky new venture. We could invest millions of dollars just in product development, only to find that we don't have anything to sell.'' EASY AND INEXPENSIVE to produce in both gaseous and liquid form, CFCs are ubiquitous. Though banned a decade ago as propellants in most aerosol sprays by the U.S. and several other countries, they are still used in the manufacture of everything from foam coffee cups and egg cartons to furniture cushions and building insulation. Liquefied CFCs are the coolants in refrigerators and air conditioners. Electronics manufacturers rely on CFC- based solvents to clean debris and excess solder off the microchips and printed circuitboards that go into computers, telephones, and hundreds of other consumer products. Hospitals frequently use a nonflammable gas composed of CFCs to sterilize medical equipment. In the U.S. alone, some 5,000 industrial customers spend $750 million annually on CFCs. Those companies use the compounds to produce goods and services with an annual value of $27 billion, according to the Alliance for Responsible CFC Policy, a trade group in Washington, D.C. The environmental hazards of CFCs stem from attributes their inventor never foresaw. The compounds were developed in 1930 by Thomas Midgley, an American chemist whose dubious legacy also includes the idea of adding lead to gasoline (see box). Midgley hit upon CFCs as nontoxic coolants to replace poisonous ammonia in refrigerators. But the chemicals quickly found hundreds of other uses. Says CFC Alliance director Kevin Fay: ''These compounds were the wonder chemicals of their day.'' CFCs were long considered completely safe because they do not react with other substances or break down easily. Indeed, the compounds remain stable for up to 150 years. But only below the stratosphere. The problems caused by CFCs show up years after they escape from leaky car air conditioners or crumpled food containers. Gradually the compounds rise into the sky. There, ten to 20 miles up, they are bombarded by the sun's ultraviolet radiation, which has enough energy to break the tight molecular bonds apart. Once freed, the chlorine in CFCs steals one of the atoms from ozone, leaving ordinary oxygen with no sun-blocking powers. Remarkably, each chlorine atom destroys at least 10,000 ozone molecules before finally fizzling out. Prominent users of CFCs, such as fast-food chains that package their sandwiches in throwaway foam containers, have aroused the ire of environmentalists. McDonald's, stung by criticism that it is contributing to the ozone problem, told its U.S. suppliers last August that by early next year it wants containers with no CFCs in them. Says a company spokesman: ''We want an environmentally sound packaging policy. We decided that there is good evidence that a link exists between CFCs and depletion of the ozone layer. Maybe this will help the situation.'' AFTER DISPUTING the allegations against CFCs for more than a decade, all U.S. makers of the compounds now agree that production curbs are justified. Says Joseph Steed, environmental manager for Du Pont's CFC operation: ''The evidence was compelling enough for us to take that position.'' The manufacturers support last year's Montreal treaty, which the Senate is expected to ratify this spring. Under the agreement, which seems a reasonable compromise on the basis of present scientific knowledge, production of the most commonly used CFCs would be capped at the 1986 level beginning next year and then would gradually drop 50% by 1999. Until replacements are available, prices for CFCs could double over the next decade as their supply shrinks. Though many manufacturers may absorb these increased costs, consumers will pay slightly more for such things as car air conditioners and home refrigerators. Companies that use large amounts of the chemicals in their products, such as manufacturers of foam insulation for buildings, could be hurt. Says Donald Hipchen, head of research at Jim Walter Corp. of Tampa, the world's largest manufacturer of rigid foam insulation: ''We sell an extremely low-margin product to extremely price-sensitive customers.'' In nearly every case, the few substitute products already on the market are inferior, more expensive, or more dangerous. Propane, for example, can be used as a refrigerant. But it is combustible and requires heavy tanks, making it impractical for most buildings and all cars. Fiberglass and cellulose insulation are less efficient than polyurethane containing CFCs. Other substitute insulating materials have drawbacks too: Alternative kinds of plastic materials are more highly flammable. Those foam burger boxes could be manufactured with pentane, a petroleum distillate. Pentane is already used in many aerosol sprays, where it is mixed with water-based compounds like shaving cream and deodorant that eliminate any fire hazard. But plants that make pentane foam containers could be dangerous places to work. One large U.S. supplier, Fort Howard Corp. of Green Bay, Wisconsin -- which until recently bought five million pounds of CFCs annually -- has rejected pentane as a substitute. Says a company spokesman: ''Pentane is pretty much the same thing as lighter fluid. It's flammable and contributes to air pollution. We doubt that we could even get a permit to use it at our factory sites.'' Still, the possibility of a breakthrough always exists. One small advance may benefit the electronics industry. Petroferm, a privately held specialty chemical company in Fernandina Beach, Florida, has developed a solvent to clean printed circuitboards. The compound, Bioact EC-7, is made up of terpenes extracted from citrus fruit rinds; it is believed to pose no danger to the environment. Says Petroferm's chairman, William Galloway, a former Du Pont vice president: ''This product works as well as or better than CFCs in some applications.'' The company is teaming with AT&T to test its new solvent. Bioact EC-7 can be used on all electronic components that are immersible in water during manufacturing, as most are. FOR A FEW exciting months early last year, it looked as if top CFC producer Du Pont, which accounts for 25% of world CFC production, had discovered its own breakthrough product for the electronics industry. After an exhaustive search, the company's scientists identified a substitute that would be far less destructive to stratospheric ozone. The new Du Pont formulation, dubbed 132b, worked perfectly as a solvent. But Du Pont's hopes were dashed last May when researchers discovered that male rats became sterile after exposure to the product. Some chemical companies see hope in recycling CFCs to stretch the allowable supply or in formulating more ozone-friendly versions. Substantial amounts of the CFCs curbed by the Montreal treaty could be recovered and reused. For example, the compounds used by the electronics industry could be reprocessed to do their job again and again. That way, they will not be quickly discarded to enter the atmosphere. If some customers recycled, the chemical industry could keep supplying companies that have no alternative to CFCs, such as insulation manufacturers. THE BEST ANSWER to the problem, say many researchers, will be a new breed of CFCs whose appetite for ozone is less ravenous. Scientists have learned that some formulations are far less harmful. Reason: They contain hydrogen, which makes them break down before they reach the stratosphere. One compound already available commercially, called HCFC-22, is 95% less destructive to ozone than standard chlorofluorocarbons. Despite its stiff price -- up to 50% higher -- the compound is gaining popularity as a coolant for commercial and residential air-conditioning systems. And in December, the Food and Drug Administration approved HCFC-22 for containers used by the fast-food industry. The catch is that HCFC-22 is much less versatile than its ozone-depleting cousins. Because of its poor insulating qualities, it is an unattractive candidate for builders. Its low boiling point rules it out for existing car air conditioners. Because air conditioners with HCFC-22 operate at much higher pressure than current automotive models, carmakers would have to design and build new compressors with expensive high-strength flexible hoses. Heavy-duty batteries would be needed to supply increased power. Gerald F. Stofflet, an automotive emission control executive at General Motors, says that retooling for HCFC-22 would cost his company more than $600 million. Before GM committed that kind of money, he says, it would want to be certain that the chlorine in HCFC-22 cannot do some unexpected environmental dirty tricks. Chemical companies have developed other well-behaved CFCs in the laboratory but have not figured out how to produce them in big volume. For example, both Allied-Signal and Du Pont are spending heavily to devise methods for producing a chemical called HFC-134a, which contains no chlorine but has many of the same properties as the refrigerants used in car air conditioners. But unlike conventional CFCs, which can be manufactured in a simple, one-step process, 134a will require at least two steps and possibly four. All the known manufacturing processes create unwanted byproducts. Moreover, the compound still faces years of toxicity testing before it can be sold commercially. If 134a jumps all these hurdles, most chemical makers estimate that it will cost three to five times more than common CFCs.

< Du Pont spent $10 million last year on developing substitutes. Says Du Pont research manager Leo Manzer: ''All our customers want a drop-in replacement that works as well as the old CFCs.'' The company makes small quantities of 134a at its sprawling Chambers Works in Deepwater, New Jersey. Now Du Pont scientists are trying to find the right catalyst that will speed the reaction enough to make efficient production possible. In computerized experiments that operate around the clock, seven days a week, hundreds of production approaches are tested. The resulting data are fed into a mainframe computer. Then a special software program, called an expert system, analyzes the data and decides whether the results look promising. If they do, the expert system is trained to telephone the good news to a scientist. Whether or not Du Pont, or any other chemical maker, can find and produce CFC substitutes fast enough to bridge the gap created by the Montreal treaty is still an open question. The only certainty in the race to save the earth's ozone is that the costs will be passed on to everybody.

BOX: FATHER OF CFCs

Thomas Midgley Jr. (1889-1944), the jovial Dayton, Ohio, chemist who invented CFCs, would have scoffed at the idea that they are hazardous. Before an audience, he inhaled them and blew out a candle to prove that they were nontoxic and and noncombustible. Yet CFCs proved to be an environmental villain. So did another Midgley invention: leaded gasoline. Both were instigated by Charles F. Kettering, the fabled research chief of General Motors and Midgley's first boss. Leaded gasoline stops engine knock, but was banned by the Environmental Protection Agency in new cars in the mid- 1970s because it fouls the air. In 1930, Kettering asked Midgley to take a crack at a better refrigerant for GM's Frigidaire division. In three days, he came up with CFCs.